By STEVE YAHN, who frequently writes about the arts.
The treasures owned by the great museums of the United States and continental Europe are frequently similar. In many museums on either side of the pond, permanent collections consist of drawings, paintings, sculptures and antiquities, all viewable under one sprawling roof.
The means of protecting and of insuring these splendid works of art, some worth tens of millions of dollars for one piece alone and others irreplaceable, are often decidedly different.
"Museums need to think carefully about their priorities in the event of a loss," said Robert Korzinek, fine art underwriter at Hiscox, the managing agent of Syndicate 33, one of the largest syndicates of Lloyd's of London. "Often museums feel they have the responsibility to protect the intrinsic financial value in the collection, either to maintain the lasting legacy of a notable benefactor or as a responsibility to trustees or even to the state.''
In these cases, Korzinek and other museum insurance experts say, fine arts institutions located in the United States will generally buy an all risks policy.
The coverage will compensate the museum for the market value of the work or the art collection immediately prior to the loss, in the event of a total loss.
Or, the policy will pay back the museum for the loss in market value and for the costs of restoration in the event of damage, as long as the work can be restored.
In Europe, many museums do not insure their collections because they're state-owned, but in the United States museums opt for one form or another of an all risks policy, said Diane Jackson, chief operating officer and director of finance at Huntington T. Block, a specialty fine arts insurance brokerage in Washington, D.C.
"I think writing museum insurance in the United States is more feasible," Jackson said. "Museums in the United States buy a museum fine arts policy, which covers owned items as well as consigned items. As long as there is a contract involved indicating a museum is responsible for it, the policy will cover it."
Jackson said that all museums in the United States have the option of insuring their works under a separate fine arts policy, or they can add fine arts coverage to their general property/casualty coverage.
"I say the separate fine arts policy is better for them because it's broader coverage, with less deductibles,'' Jackson said. "You get the expertise of a fine arts claim adjuster, whereas under a property policy, maybe some would use a fine arts adjuster, some wouldn't.''
In contrast, other museums, usually in Europe, see things differently. They consider themselves custodians and curators, not necessarily owners, of a public trust.
"The trustees see themselves as custodians of a collection built up often over centuries, a collection which may grow and change its shape but essentially cannot be replaced," Korzinek said. "If an object is damaged then it should be the museum's responsibility to restore or conserve the object in the most sensitive way possible, but if it is totally lost, whether through fire, damage, or theft, then the object is irreplaceable."
For those museums, he said, it's almost as if it doesn't make sense to insure pieces that, if lost, are irreplaceable to begin with.
Museum directors who favor that approach have decided, in effect, that money--public money that would otherwise be spent on insurance premiums "should instead be invested in new exhibitions, new acquisitions or maintaining and improving their buildings and facilities,'' he said.
Korzinek, Jackson and others said that museum managers have to ask themselves whether their primary responsibility is to protect the objects in their collection to the best of their ability, either by conservation and restoration in the event of damage, or whether they additionally have a responsibility to protect the financial value contained in their collections.
INDEMNITY AND UNCLE SAM
The dynamics change when one institution in New York, for example, lends works of art to another museum in Milan, Italy, for a temporary exhibition, experts said.
Such stark differences between European and American museums on insurance matters cause Scott Hodes, an art law expert at Bryan Cave LLP in Chicago, to advise his clients to be safe rather than sorry.
"Because of the fact that many foreign museums do not carry insurance, I recommend that an American lender, whether an individual or an institution, buy an insurance policy through a U.S. carrier and have the European exhibitor pay for the policy,'' Hodes said. "Otherwise, I advise my client not to loan the work.''
"Neither private collectors nor other museums are likely to loan their artworks out on exhibition without full all risks coverage for the market value of the artwork being in place,'' Korzinek said.
Steven Pincus, managing director/partner, at New York-based brokerage DeWitt Stern Group, joined other art insurance experts in underscoring a major way of insuring art and artifact exhibitions when on loan: government-backed indemnity programs.
The leading example is the U.S. government's Art and Artifacts Indemnity Program. Administered by the National Endowment for the Arts, the insurance program is designed to cut the cost to taxpayers of insuring international exhibitions.
"The government indemnity provides a very high level of all risks insurance coverage, but there are very strict underwriting guidelines,'' Pincus said. "Everything has to be packed according to a certain standard and shipped according to a certain standard and so forth.''
Backed by the U.S. government, the indemnity program allows coverage for an exhibition up to $1.2 billion. Indemnity triggers kick in when loss or damage exceeds $15,000 for exhibitions valued at $2 million or less.
At the high end, indemnity triggers kick in when losses or damage exceeds $500,000 for exhibitions, for which the value of items covered is worth $500 million or more.
The deductibles are fixed, and there's no room for negotiation. The U.S. government is "the only underwriter you can't negotiate with because you're not paying for it,'' Pincus said.
In the event of loss or damage to an indemnified object, government-sanctioned adjusters must certify the validity of the claim and request Congress to authorize payment.
The government-backed indemnification program was created in 1975 to cut the cost of insuring international exhibitions. In 2007, Congress expanded the eligibility under the program to include works of art owned by U.S. entities while on exhibition in the United States.
Since its beginning, the program has indemnified more than 1,000 exhibitions, saving organizers and taxpayers nearly $312 million in insurance premiums, according to the NEA website.
Many governments around the world, including most European countries, offer similar government indemnification programs in which the government effectively acts as insurer, Korzinek said.
Where government indemnity does not exist, or where the government cannot or is not willing to cover an exhibition, then commercial insurance will be sought, he said.
For U.S. exhibitors, the issue often becomes a question of whether they trust a foreign-government-sponsored indemnity program, Pincus said.
"I don't want to open a can of worms, but often times you will see a lender who is lending to a foreign exhibition want to maintain their own insurance,'' he said. "People trust the U.S. indemnity program, but to put a claim in under a foreign government indemnity program sometimes is a little frightening to some people. We see that a lot.''
Hodes highlighted another area of concern when loaning works to European museums: Some museums are not equipped to handle delicate works of art, and still those same institutions don't insure these works.
"I represented a collector who was loaning gouaches, which are very delicate, to a foreign museum and my client was very concerned about the amount of light and temperature in the museum,'' Hodes said. "Some of the museums in Europe do not have the right light and temperature controls in place. I can tell you a collector has to be warned that all museums are not created equal. The lender has to be very conscious of the work they're lending. So one thing a collector should carefully scrutinize is if there is anything unusual about the work he or she is going to loan, or how it will be handled and displayed.
"If you do loan overseas, if there is damage or theft, how are you going to collect against it when the museum is located overseas if there's a dispute?'' Hodes said.
Collectors and risk managers need to tell foreign museums that the loan deal is off unless a carrier in the U.S. writes specific insurance on it, and unless the foreign museum pays for it.
"That's the ultimate way I know of to protect the lender here unless the U.S. government's indemnity program kicks in,'' Hodes said.
Hodes warned that there are probably two dozen countries in the world, at least, in which if there's a loss, in the insurance policy bought in the United States the art collection is not protected at all.
Added Hodes: "So it becomes a very sophisticated activity to make sure that if you're going to loan overseas you've got the right protection. It's not a slam dunk.''
OVER THE LONG, LONG TERM
Museums, particularly those in Europe, which do not buy market value insurance for their permanent collections, have started looking at long-term loan programs in which one institution or a private collector lends their treasures to another over a period of years or decades.
For objects lent to museums by individual collectors or institutions over the long term, in many cases, "legally sound loan agreements do not exist and full consideration has not been given to what the museum's financial liability to the lender may be in the event of damage or loss,'' Korzinek said.
Specialist insurers such as Hiscox are working with museums to provide advice and, when necessary, insurance coverage for these objects as part of long-term loan deals, Korzinek said.
Cash-strapped museums that do not insure the market value of their collections are also looking at other ways to avoid unexpected financial outlays.
Many museums, for example, have decided to buy restoration-only cover, Korzinek said. This cover provides the museum with the necessary funds to quickly hire the best restorers and conservators, whether it be to deal with damage caused to a single object by a careless worker or visitor, or whether it be to insure against a catastrophic event such as flood or smoke damage to a group of works or an entire collection.
Because the insurer's liability is limited to the cost of the restoration only, and not for the additional loss of market value, the insurer is able to offer this coverage at a fraction of what it would cost to offer traditional market value coverage, he said.
September 15, 2011
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