Taking Cover

Insuring against floods, fires and theft are all part of the specialist services offered for fine art and antiques, says Andrew Davies

The idea of paying even a fraction of an item’s value annually to an insurer as protection against losing everything is still viewed as a dull way to spend their hard-earned cash by many art collectors as opposed to buying home or car insurance, which is considered by most as an obligatory expense.

Unlike your clothes, television, car or house where insurance cover is on a ‘new for old basis’, due to their often-unique nature fine art and antiques can only be replaced on an ‘agreed value’ basis. However, even though fine art cannot normally be replaced with an identical piece, nothing is priceless and a level of financial compensation for the asset value of a piece can always be agreed between the client and insurer so long as it can be justified. 

As a precaution against possible fraud involving over-valued items, the levels of the ‘Agreed Value’ are generally determined by professional, third-party valuations by specialists such as leading auction houses or fine art valuers, (RICS accredited of course!). These should track with the market and should be reviewed every three to five years, depending on the speed of change in value for the objects concerned.

For private collectors, fine art insurance touches on many personal issues, such as the security of their home as well as the emotions that relate to the objects they possess, so confidentiality and security of their information is often the first question clients ask about. It is in the best interests of insurers to protect personal and security information, but many common insurance misperceptions still abound.

One such falsehood is that insurance companies include clauses in the small print designed to stealthfully avoid settling claims. In fact, today’s insurance market is very transparent and due to regulation, is generally weighted in the client’s favour. You place your trust and confidence in your insurer as, to a certain extent, they place their trust in you. The insurance of valuable, precious and often portable items is particularly susceptible to fraud and insurers like to ‘know’ their clients and fully understand the risk they are insuring to avoid issues such as misrepresentation or ‘moral hazard’. 

Choosing the right insurer

Art collectors should choose or judge any insurance company by their willingness (in terms of the scope of the policy wording) and capacity (solvency and ability) to pay claims. Although you may have a preferred insurer in mind, my advice would be to engage the services of a broker whose role it is to understand your personal needs and seek the most suitable and economic cover in the insurance market; for which they will receive a commission (normally 25%-30%) from the chosen insurer. Your existing general broker could search the market or use a specialist broker to place the business on their behalf. This becomes more likely for larger private or corporate risks such as museums and galleries, but it is rare to be insured without any broker involvement at all.

London has the advantage of being both a leading centre of the international art market and the international insurance market. Fine art insurance developed from 19th century marine cargo insurance and still retains some quaint characteristics and gentlemanly conventions originating from the face-to-face meetings when a broker ‘brokes’, (explains or ‘sells’ the risk), to the underwriter for their consideration and best rates.

An international collector with homes in London, New York and the South of France can have a worldwide policy written on an ‘all-risks’ basis. Specialist insurers know and understand that their policies must be flexible enough to cover normal collectors’ activities, whereby at any one-time part of a collection may be with a conservator, framer or restorer, in storage, on transit to an exhibition or going to or from an auction house. If the insurer is made aware of significant movements and that recommended experienced firms are used for transit, there should be no additional premium charges. Specialist associated services such as shippers and packers, conservators and restorers as well as specialist fine art loss adjusters can all be found and directed from London.

For the best rates, collectors can impress their insurer by demonstrating well considered risk-management and control of collections, inventories or databases that include digital images. These records aid in both the ‘housekeeping’ of any collection whether it is a small private one at home or housed in a museum or gallery and also improve the chances of recovering stolen items.

What’s in a claim?

Broadly speaking, claims are events that can be described as happening at a specific time. A flood on Monday, a fire on Tuesday and a painting stolen on Wednesday are the makings of a lousy week, but all can be covered; as opposed to actions over time, such as light fading a watercolour, mould growth on furniture in a damp inappropriate storage area and infestations by vermin from woodworm to mice. However, in some rare instances there are exceptions to this rule where ex gracia settlements are made e.g. a case where a squirrel had set about chewing up a George III wing armchair before expiring in the process. [Acts of war are normally excluded too as are acts of a nuclear or biological nature.]

Serious fires can often be avoided or mitigated with risk management and are on the relative decline, although a conflagration such as the one at the Glasgow School of Art in 2014 and in devastatingly again in June 2018 do still occur. Professional targeted theft is a similarly relatively rare event, although clients should always take care to avoid the careless ‘opportunist’ theft. On the other hand, the increasing location density of risks, especially to select coastal areas, and rapid inflation in fine art values has magnified the effect of certain catastrophic events such as hurricanes.

On the basis that ‘something happens to someone somewhere’, any client, good or bad, can suffer a claim, but good risk management can mitigate most unnecessary losses. A good insurer will survey risks and offer specialist advice as well as checking that the information received is correct and that standard insurance industry security requirements have been met. The important point is not to rack up regular ‘attritional’ losses that could cause you to lose your Underwriter’s confidence.

Do not be fooled into treating insurance as another bank account whereby you pay in and expect to get at least the same amount out again. Remember that your claims record travels with you for five years and is a key indicator in an Underwriter’s assessment of your risk and their premium calculation.

Often the most interesting and illuminating part of insurance is the set of events that accompanies a claim. The transportation of art and antiques generates a significant number of claims and there is an old adage in the insurance industry that “three moves are as good as a fire”. In today’s highly active art market, with so much travelling between block-buster exhibitions, international fairs and auction houses, the potential for accidental damage caused by poor handling is huge; some as the result of a badly aimed forklift truck tine that punctured both the packing crate and the painting inside. Unwitting customs officials have often accidently broken, thrown away items they don’t understand and on one occasion even unwrapped a Christo chair.

The materials and techniques used in contemporary art can lead to a whole new world of previously unimagined forms of claims. What do you do if your Manzoni Merde d’artiste cans start to leak; your Fontana painting is found to have acquired a few new tears? In this situation, contact your specialist insurers’ claims team as soon as possible. They will have the experience to deal with the most unusual problems, and limit further loss. The other consideration is that the secondary, (auction), market demands that contemporary art is kept in pristine condition. A small scuff or tear to an oversized print is likely to lead to it being an effective total loss. Whereas arguably the same damage to a nineteenth century oil painting would be relatively easy and inexpensive to restore resulting in little, if any, depreciation in value. Sadly ‘inherent vice’, a self-destructive gene found in some artworks cannot be covered. The concept of a block of ice in the desert may be profound but is not insurable.

Often the best advice to seek advice.