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By STEVE YAHN, who has written for and edited national publications for more than 30 years

The Philadelphia Museum of Art and AXA Art Insurance Corp. have filed dueling lawsuits in what is expected to be a protracted affair, which could add a significant body of law in the all-important realm of consignment protocol.

The museum and AXA agree on the facts in the case, revolving around the Prendergast painting, which the museum values at $1.5 million.

The museum is attempting to recover the money not from the art dealer who bilked it but from AXA, which insured the paintings for the museum.

In a suit filed in Maryland, where its broker Willis resides, the museum claims that the way its "all-risk" policy reads is that it covers all risks of physical loss or damage, including "financial" or "economic" loss.

The AXA position is that the painting resides safe and sound with another gallery, which bought the Prendergast from a New York gallery hired in 2006 to sell the painting. So there was no physical loss of this object.

The whereabouts of the Davies painting is not known.

THEFT, NOT ACCIDENTAL DAMAGE?

The origin of the dispute goes back to 2006, when the museum decided to sell the two paintings. They consigned the paintings to the Salander-O'Reilly Galleries on New York's Upper East Side. Within about two weeks of taking possession of the two paintings, Salander sold the Prendergast painting for $1.5 million to Davis & Langdale.

After repeated claims he would pay the museum, Lawrence Salander never made a payment. Facing a raft of legal actions, Salander declared bankruptcy in November 2007. The museum filed a claim, but the bankruptcy is still pending.

"What the museum may recover remains unclear to us," said Norman Keyes, a museum spokesman.

The museum is now claiming that it should be paid $1.5 million by AXA because Salander, in effect, stole the painting.

In turn, AXA has asked a federal judge in Manhattan to void the claim. AXA contends that the policy was supposed to protect the museum's works from accidental damages, not financial fraud by a third party.

Last year, federal authorities charged Lawrence Salander and an associate with swindling patrons, collectors, galleries and museums out of $93 million.

Some of those cases involve instances where coverage was provided by AXA, thus heightening reason for why the insurer might be reluctant to make a payout to the Philadelphia Museum of Art, one insider noted.

THE 850-POUND ELEPHANT

Attorneys on both sides of the dispute and other experts noted there is an 850-pound elephant in the middle of the room of the dispute--a case ruled on in Chicago in early 2007, Henry F. and Anne Marie Frigon v. Chubb Group of Insurance Companies' subsidiary Pacific Indemnity Co., Wisconsin.

In this case, a judge ruled that the Frigons had suffered "financial" or "economic" loss at the hands of art dealer Richard Love, who was insured by Pacific Indemnity.

Here, too, the owners of the works of art chose to sue the insurance company, not the financially strapped art dealer.

The judge's ruling was a landmark decision. It extended the traditional definition of loss beyond physical damage and theft to include an instance in which the Frigons were financially swindled.

Pacific Indemnity settled out of court with the Frigons in what one well-placed source called a handsome payment.

Said Scott Hodes of Chicago-based Bryan Cave, lead attorney for the Frigons: "As a result of interpreting conversion of consigned property as a loss under an all-risks policy, insurance carriers may have to consider amending these policies to require prenotification of a consignment."

Added Hodes: "Insurance companies will have to be much more specific in terms of how they define loss in these instances."

At this point in the Philadelphia Museum of Art v. AXA case, all sides agree that the first major confrontation will be over where jurisdiction will take place. The museum's filing in Maryland is seen as an attempt to have the case tried on friendly ground, while AXA sees a friendlier reception in New York.

March 18, 2010

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