Artful Adjusting

More and more people are buying art for pleasure and for investment purposes, and many end up with quite a lot of artwork before they realize just how large their collection is. Some may not fully appreciate how large their exposure is if they face a loss.

In this article, we look at insurance issues related to art owned by individuals. The definition of “art” in this context is broad: it includes paintings, drawings, photographs, sculptures – but also jewellery, china, ceramics, rare stamps, coins, books and manuscripts, sports memorabilia, antiques – basically anything that can be bought or sold at auction. Art can be insured under a homeowner’s policy or under a separate specialty policy.

Homeowner’s insurance

Under a homeowner’s policy, art may be covered generally as contents, or individual items can be listed in a separate rider to the policy. Adjusters who find themselves dealing with art claims under a homeowner’s policy may discover that the art collection is underinsured under standard homeowner limits and coverage. For example:

Policy limits: Some insureds assume that as long as they insure their contents under their homeowners policy to a high amount, their art is sufficiently covered. However, insureds may underestimate the total value of their contents, and the contents policy limit may not provide sufficient coverage.

Per-item limits: In addition, there is often a per-item limit for valuables included in contents in a homeowner’s policy. These limits can be quite low (for example, $2,000), potentially leaving some items in an art collection underinsured.

Excluded perils: The perils covered under a typical homeowner’s policy do not cover all the risks related to artwork. Coverage for perils such as fire and theft is provided, but breakage of fragile items, for example, may be excluded.

Specialty insurance

Where the insured has a separate specialty insurance policy, this can provide coverage that is more tailored to the protection of art and the activities of art collectors. Features of a specialty policy may include the following:

Broad form coverage: Wording that will cover various forms of accidental damage, such as “all risks of physical loss or damage” (subject to limited exclusions).

Coverage for different types of objects: Wording that will cover more than one type of art or collectable, such as “objects of art of every nature and description.”

Worldwide, wall-to-wall coverage: Collectors often move pieces of art between multiple homes, or to and from off-site storage, or to museums, galleries or auction houses. Specialty policies can cover art from the moment it is taken off the hook on one wall to the moment it is affixed to a nail or hook on another wall, including while in transit.

Immediate coverage for new items: Many art owners buy and sell quite regularly, and these activities can take place online at all hours. Some policies will extend coverage for scheduled items to automatically cover new acquisitions (up to a value limit) for a few weeks or months, giving the insured some time to assemble documentation and report the acquisition to the insurer.

Cataloguing and reference: It’s important for collectors to keep detailed inventory records, including information that can help substantiate the provenance and value of items in a collection. Many collectors maintain an art reference library as well, to inform their collecting and cataloguing activities. Some policies offer additional coverage for losses related to the reference library or for the costs of preparing inventories.

Some insurers may also offer optional coverages for things such as work in progress or for loss resulting from restoration work.

Blanket, scheduled, or combination coverage

Coverage under a separate art or valuable collection policy can be written three ways:

• All items can be separately itemized or scheduled, listing the value of each item.

• The policy can provide blanket coverage for the collection. This option is often used when there are many pieces whose individual values are relatively small but whose combined value is substantial. Regardless of the total amount of the blanket coverage, there is usually a per-item maximum that the policy will pay.

• There may be a combination of scheduling and blanket coverage, providing complete coverage for pieces that are listed separately and blanket coverage for the rest (subject to the per-item limit).

Loss settlement options

Various loss settlement options are available under art insurance policies. For example:

• Agreed value (insuring for a specified amount)

• Current market value with a percentage cap, with no requirement that the object be replaced

• Current market value with no percentage cap.

One concern with agreed value is that it does not automatically take into account changes in the market. In spite of this, the agreed-value option is quite popular because it provides certainty: the insured knows exactly how much the item is insured for.

Catalogues and appraisal reports

No matter which type of policy provides coverage, the insured should maintain detailed documentation on their collection, including appraisals of value. Appraisals should be completed by qualified appraisers and should be updated periodically – in general, every three to five years. If the art is insured under a specialty policy, the insurer may require updated appraisals at specific intervals or for certain objects.

In addition to keeping appraisal reports, art owners may also be advised or required to maintain additional information for each piece in their collection:

• Details of the artist or maker (name, date of birth/death)

• Title of the work and description of the subject matter

• Dimensions and materials

• Description of how the work is displayed (framing/mounting materials and suppliers, etc.)

• Condition of the item

• Any distinguishing features, markings or inscriptions

• Receipt and date of purchase

• Certificate of authenticity

• Provenance and any paperwork provided by the seller

• Whether the work has been exhibited, referred to in any catalogues or news stories, etc.

• Description of where the work is physically located

• Photos of the work from various angles

Regardless of the type of policy under which the art or collectibles are covered, these cataloguing details – together with the appraisal reports – are invaluable documentation at the claims stage. W

This article is based on excerpts from ADVANTAGE Monthly, a series of topical papers on emerging trends and issues provided to members of the Chartered Insurance Professionals’ (CIP) Society. The CIP Society is the professional organization representing more than 15,000 graduates of the Insurance Institute’s Fellow Chartered Insurance Professional (FCIP) and Chartered Insurance Professional (CIP) programs.