Considerations When Insuring Your Art
Suppose you’re a first-time buyer of serious, valuable art. Your first instinct should be to find a separate insurance policy for it BEFORE it is shipped to you. At this point, you’re probably saying to yourself, “My homeowner’s policy already protects me for lost or damaged personal property, so why do I need to purchase a separate policy?”
First, the typical homeowner has a policy that covers lost, destroyed or stolen personal property based upon (1) a set limited amount, say $15,000, (2) an addendum to the policy in which your art and its value are listed, (3) a “floater” to your policy covering additional losses of personal property beyond the policy’s usual limit or (4) a percentage of the replacement value of the destroyed real estate, say up to 50% of the replacement cost of a home. However, just because you have paid for extra insurance does not mean that the typical homeowner insurer will simply cut you a check for what your claim it is worth. They will make you prove that you owned the piece of art before the fire and force you to evidence the artwork’s provenance to make sure that it is not a fake or reproduction and establish its current appraised value. The end result is that unless you kept great records and protected them offsite, you may never see a penny for your lost artwork under a traditional homeowner’s policy even if you purchased an expensive floater to cover additional personal property losses.
The best way to insure your art investment is by hiring an insurance company that specializes in insuring individual pieces of art. Why? These companies will bind themselves to cover the value of your investment now, relieving you of the unpleasant task of haggling or litigating with your insurance company after the loss. If you have, say, a Salvidor Dali with convincing provenance, these specialty art insurers will pay you the full amount of the appraised value at the time when you procured the insurance. Note, however, if your Salvidor Dali substantially increases in value over the years, it is your obligation to obtain an updated appraisal from a qualified USPAP personal property appraiser in order to properly amend your policy, knowing that the insurance company will raise your premium for that protection.
You should know what you’re buying when you contract a specialized art insurer. First, you should be purchasing title insurance for your artwork. You want to be insured against fraud in case your Salvidor Dali is a fake. You also want to make sure that you are not purchasing looted or stolen art. In order to obtain this insurance, the specialized insurer will want to see as many records within and outside your possession evidencing the provenance of the painting. The specialty insurer will want to see your receipt from where you purchased the piece, photographs, and other provenance evidencing its authenticity. Records showing the transfer of the piece from several prior owners is often important. Occasionally, you might be asked to procure the services of an expert who will provide legal documentation in which he opines as to the work’s genuineness. You also should provide a record of ownership if the piece has passed through several owners.
Second, you need insurance for the replacement cost of your piece if it is totally destroyed or stolen, and repair cost if it is damaged but not totally destroyed. For example, after a fire an insurance company might decide that the piece can be repaired or restored and that this cost is less than replacing it. In that event, the insurance company pays for the repair or restoration. It may or may not reimburse you for the diminishment in value of the piece because it is no longer in original condition but repaired, and this admeasurement of loss must sometimes be specifically negotiated. If loss of value is included in the policy, then the insurance company will pay for the restoration and the difference between the policy’s agreed-upon appraised value and its value as a restored work of art. It is usually better to bargain for the replacement cost of your art instead of purchasing protection just for the original amount of your investment. Great art has been known to appreciate wildly, and you don’t want to get reimbursed $100,000 for your Dali that you purchased ten years ago if it was worth $700,000 on the date it was destroyed. In order to maintain this protection, however, it is important to procure regularly the services of companies like Arcadia Art Consultancy to submit regularly updated appraisals to your specialty art insurer. Finally, don’t forget that art is most often damaged in transit, so procure your insurance before you accept delivery of your art investment.
Third, a common error made by art investors is to buy the cheapest policy. This is a terrible mistake to make. The number one consideration in purchasing any hazard insurance such as a homeowner’s policy or specific policy for your art investment is the creditworthiness of the insurer. Many start-up or fly-by-night insurance companies have sold cheap policies, taken their bonuses and paid their executives' high salaries and then been wiped out by a hurricane or other disaster because of insufficient reserves. When this happens, the policyholder has little or no recourse as to reimbursement of his stolen, lost or damaged art. We recommend A+ and A++ specialty art insurers.