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

A high-profile insurance dispute is the latest round in a long-running legal battle between the Andy Warhol Foundation for the Visual Arts, its sister organization the Andy Warhol Art Authentication Board and the Philadelphia Indemnity Insurance Co. (PIIC).

The insurance controversy centers on two insurance policies purchased by the foundation from Philadelphia Indemnity in 2002 and 2003: a $2 million errors-and-omissions (E&O) policy and a $10 million directors' and officers' liability (D&O) policy.

In the Supreme Court of the State of New York, County of New York, the foundation and the Andy Warhol Art Authentication Board, established in 1995 by the foundation, claimed that the insurer wrongfully denied coverage.

Last November, Simon-Whelan and Shaer, after admitting they had no evidence to back up their allegations, agreed to drop their anti-trust suits, which charged that the foundation and authentication board conspired to inflate the price of works by Andy Warhol. The collectors had also claimed that the Warhol authentication board denied them authentication for two works they purported were created by the deceased artist.

This paved the way for the Warhol Foundation to reopen a standstill agreement that had been reached with Philadelphia Indemnity, which called for a halt in discussions about any payouts from the $10 million D&O policy purchased in December 2003 until legal matters with Simon-Whelan and Shaer were resolved.

The insurer had earlier paid $225,000 under a 2002 E&O policy to cover defense costs in the Simon-Whelan suit, according to the Warhol Foundation's complaint. According to the standstill agreement, Philadelphia Indemnity agreed to pay a total of $1.7 million under the same policy. Now it is time for the insurer to pay the final legal costs from the D&O policy, the foundation argues.

The insurer is expected to contest the foundation's latest charges, but it has made no official statement. Philadelphia Insurance Cos., parent of PIIC, told Risk & Insurance® it does not comment on any pending litigation involving the company or its policyholders. PIIC is represented by Richard Reiter of Wilson Elser Moskowitz Edelman & Dicker LLP.

STOPPING COPYCAT CASES

According to knowledgeable sources, the insurer has one main defense: that coverage was denied under the professional services exclusion of the policies. Philadelphia Indemnity has claimed that, because members of the Warhol authentication board receive a stipend for their annual work in reviewing works of art purported to have been created by Andy Warhol, that the authenticating work is a professional service and should be excluded.

Countering the insurer's position, New York-based Nicholas Gravante Jr., lead attorney for both the foundation and the authentication board at Boies, Schiller & Flexner, told Risk & Insurance®:

"We think it is very clear that there is coverage under the policy for the lawsuit that was brought against the foundation and authentication board and their officers, all of whom are insured under the policy. I don't think there's any doubt about that."

Gravante said that the authentication board, comprised of three Warhol scholars who annually review works purported to have been created by Andy Warhol, is not performing professional services. Further, Gravante claimed, "If the act of authenticating Warhols is excluded, then there is nothing else that the authentication board does. So why would they have purchased the insurance?"

As for how payment might be made should the Warhol foundation win its case, Gravante said, "We've taken the position that the legal fees in question are covered under both policies. If they want to pay us all the money under the D&O policy, which has a $10 million limit, that's fine with us. If they want to pay us a portion of the money under each of the policies, that's fine, too. We just want to be paid 100 cents on the dollar for the insurance that was bought and paid for."

It was very important for the foundation to win against Simon-Whelan and Shaer, according to Gravante, because of the potential for copycat cases.

"The foundation obviously could have settled with these two collectors for a lot less than they spent litigating against them," he said.

"The problem, however, would be that anyone who receives an opinion letter from the authentication board denying authenticity of a work would be tempted to file a lawsuit hoping the board might say, 'Why don't we just pay nuisance value since we know Boies, Schiller & Flexner will cost a hell of a lot more to knock them out on a motion to dismiss,' " said Gravante.

April 19, 2011

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