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The art world has been in trouble with the insurance industry since businessman and collector Ronald Perelman sued the insurance companies for not paying for five paintings after a fire broke out at his East Hampton home in 2018. has been taken control of. Perelman reportedly testified that the $410 million worth of works had since “lost their luster.” . . And that work, a 1971 painting by Cy Twombly, had “lost its vitality.” The ongoing debate raises questions about the limits of arts insurance, particularly whether “vitality” can be quantified.
The “loss or damage” clauses on which Mr. Perelman’s suit is based are some of the most common types of insurance, said Robert Reed, head of art at insurer Hiscox and a private client. . Although not speaking directly about the Perelman case, Reed said the provision is “very broad, but it covers physical loss or damage.” Emotional losses will not be compensated. ”
Damages typically cover the cost of restoring the artwork and calculated depreciation. However, proving physical damage to art is not clear-cut. Perelman’s lawsuit includes an analysis by outside experts that his complaint says “demonstrates the irreversible harm caused by the fire.” Reed said that in general, “It’s amazing what scientific analysis can show, but one expert can say the same thing and be reliable, and another expert can say the opposite.” There are things you can trust.”
Valuations are a potential minefield in an already uncertain market. Insurance premiums are usually calculated as a percentage of the value of the item or collection. However, because these rates are relatively low (typically less than 1 percent), collectors who take out art insurance tend to claim the highest possible value for their collections, thus reducing the risk of a claim. You will receive the best results if. This is also good for the insurance company’s profits as they can receive higher premiums, but may not represent the actual value and may not represent valuations done for example for inheritance tax or divorce settlements. may be significantly different. “It’s common to get caught up in disputes between appraisers,” says Amanda Gray, art law partner at Mishcon de Reya.
In any case, she says collectors should pay more attention to contracts. “A millionaire might not be interested in looking over insurance documents, but someone has to do it.” Even if the deal is completed, she says, “it’s sitting in a drawer. It’s not a dead document that should be kept.” Rather, collectors should be aware of the following: “For example, if you move your art, especially to another jurisdiction, if it increases in value, if you buy a new piece, you need to renew your insurance. We don’t want you to test that.” she says. The Perelman case could come down to “a lack of certainty, including what ‘fire damage’ actually means in the first place,” she said.
Another problem is that prices for certain modern and contemporary artists have skyrocketed in recent years, said David Scully, an insurance brokerage expert who served as AXA XL’s art underwriter for more than 25 years. That makes art more capital-intensive for insurance companies, as its value is concentrated in just a few items, such as Perelman’s five paintings, and insurers are better able to prepare for claims. He says they have to set aside a lot of money, which eats into their profits. “Arts insurance used to be one of the most profitable lines of business, so when a claim occurred, insurance companies could be very generous. Today, it’s no less attractive. “It’s not a good route,” he says.
Risks are rising due to growing concerns. “Climate change, especially in areas prone to hurricanes and earthquakes, has made the interest rate for catastrophe risk much more stringent,” Scully said. Putting work into freeports, which are tax-advantaged storage facilities, may not be helpful as the concentration of value again increases risk. Mr Hiscox’s lead points to other areas currently included in art insurance calculations, such as the potential for attacks by activists in museums and “increased damage from people taking selfies or entering objects backwards.” has also issued a warning.
Collectors can also choose not to purchase art insurance at all. “Our biggest competition is not AXA, it’s people who don’t insure,” Reid says. People outside the U.S. and Europe “are sometimes willing to take on the risk themselves,” he says. Scully notes that this could address privacy concerns, as “some people don’t want a paper trail of insurance.”
The Perelman lawsuit is still a rarity in the art world, Gray said. But Scully warns that claims could arise if owners suffer losses on their business or investments in the current economy. He says (without mentioning the Perelman case): Most come from necessity rather than greed. Some people are always honest, others are blatantly dishonest, but there is a wide range of people in between who can serve as paragons of virtue until the day comes when they have a pressing debt to pay. ”
