Fine Art Insurance Policies Prove Worth During Disasters

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The year started off badly for the Albany Museum of Art in Georgia, when a massive tornado ripped off a section of the roof and caused damage to approximately 1,500 items, many of which were sub-Saharan African art. The good news is that the museum building and its contents were fully insured, and every one of the objects is in the process of being restored through its AXA Art Insurance policy.

Can homeowners with a large or small art collection be as sure of the protection of their prized possessions if some natural disaster – earthquake, fire, flood, hurricane, mudslide or tornado – were to strike? As the number and intensity of natural disasters appears to increase every year, attributed in whole or in part by scientists to climate change, it makes sense for collectors of valuable art and other objects to obtain the most protective insurance policies.

“Climate change is a great concern to the art insurance industry, particularly because of the hurricanes we are seeing,” said Colin Quinn, director of claims management at AXA Art Insurance. “Hurricane Sandy was a wake-up call for many people, because it caused extensive damage to art in galleries in New York City and in private homes in Long Island, but up and down the east coast there is a large number of art collections that future hurricanes may reach.”

Do you need a fine arts policy?

Museums, art galleries and owners of significant art collections obtain fine arts policies from insurance companies such as AXA, AIG, Fireman’s Fund and Chubb’s, but this type of coverage may not make sense for every individual owner of artwork. Most homeowner’s policies cover the contents of one’s home, which may include art, antiques, jewelry, silver and other values, and this coverage will cover theft and damage to artwork. However, there may be a limit for how much the insuror will pay for a single item – for instance, $10,000 for a work of art – and there is often a deductible. A $500 deductible may eliminate the prospect of receiving a claim for an art print or a vase. Homeowners policies cover certain types of perils, such as fire or a falling tree limb, but not earthquakes or floods, which need to be purchased separately. Many homeowner’s policies have exclusions, not covering breakage (a vase or sculpture falls on the floor) or when an object is in transit (damage to a painting being moved from the primary residence to a summer cottage, for instance).

Fine arts insurance policies for private collectors, on the other hand, have no deductibles and pay the full appraised value of a stolen or damaged object without regard to how the piece was damaged; they generally cover all major contingencies, such as floods, earthquakes, tornados and even acts of terrorism, as well as damage occurring while the piece is being moved.

In most cases, each individual art object will be appraised, and premiums will be based on whether the items have an agreed-upon value (this painting is worth $250,000) or a current market value (the value at the time of the incident). Those premiums range, based on what is being insured and where the objects are located, from 15 to 35 cents per $100 in coverage (or $150 to $350 a year for a $100,000 in coverage), 13 to 15 cents per $100 for $750,000 and four to seven cents per $100 for coverage in excess of $1 million. The potential of earthquakes in California, hurricanes in Florida, tornados on the Great Plains and terrorism in Chicago, Los Angeles and New York City increase the costs there (“premiums are based on zip codes,” one fine arts insuror stated). Premium costs also may be higher in areas prone to crime and in homes in which security measures aren't deemed sufficient.

There are some exclusions for fine arts policies, involving wear and tear (a sculpture sited outdoors may be damaged by the elements or acid rain), gradual deterioration (paint chips fall off older canvases), what art conservators call “inherent vices” (artworks that were not made with longevity in mind), war, nuclear explosions and biological contamination.

So, when should an art collector look to purchase a fine arts policy, as a rider to their homeowner’s insurance or as a separate area of coverage – when their collection reaches the dollar value of $10,000, $100,000, $250,000? “It all depends on an individual’s tolerance of loss or risk,” said Dorit Straus, a private art insurance advisor and former worldwide fine art manager for Chubb’s.

Quinn noted the importance of having values updated on a regular basis, because prices for certain artists’ work may rise significantly as the result of important exhibitions and sales. (And, perhaps even more often, prices for works by other, once heralded artists may decline.) Not obtaining periodic appraisals may save money on appraisers’ fees and higher premiums, but a claim may result in a low settlement if current prices are not taken into account. “You don’t want to play Russian roulette with your art,” he said, adding that “most insureds are very responsible and rely on insurance brokers or art advisors who remind them to update their valuations.”

Fine art insurers do more than just take write policies, take premiums and pay out claims. After the tornado damaged the Albany Museum of Art, AXA dispatched an emergency team to Georgia to assess damage, soon after shipping pieces to conservators for detailed analysis and to begin the work of restoration. The work is expected to be completed before 2019.