For the average person with various collectibles or decorative art around the house, a typical homeowners’ policy is sufficient to insure against loss or damage to such pieces. Additionally, “valuable items” coverage, which is scheduled separately from the homeowner’s policy, may be obtained to adequately cover more expensive pieces. For the serious art collector with an extensive and valuable collection, however, a separate fine art policy should be obtained to manage risk and protect against, among other risks, fire, theft, and water damage.
Ideally, an insurance advisor who specializes in fine art insurance will visit the collectors home to assess the particular risks to the collection, which can vary based on geography, architecture, and security. Valuing the pieces in the collection to be covered by the policy should be done by a qualified appraiser, such as Freeman’s, in tandem with the risk management process to properly protect the collection against potential threats.
Of course, even when collectors think all their bases are covered in terms of risk management and insurance, they can still find themselves in trouble when an unexpected loss occurs and the insurance company refuses to pay out on the claim. This is exactly the situation that occurred in Frigon v. Pacific Indemnity1, where collectors Henry and Anne Marie Frigon battled their insurance company over coverage related to an unanticipated loss.
The Frigons, connoisseurs of fine art [as described by the court], purchased eleven paintings over several years from a gallery in Chicago, with whom they developed a close business and personal relationship. In addition to purchasing work from the gallery, they would also occasionally place paintings back with the gallery for resale under a consignment agreement. Indeed, between 1997 and 2002, the eleven paintings at issue in this case were placed with the gallery for sale on consignment. The Frigons had paid over $1 million for the eleven paintings, which were consigned back to the gallery for a minimum sale price of $1.6 million.
Unbeknownst to the Frigons, however, the gallery had been insolvent for many years and allegedly began selling consigned items for less than the minimum agreed price to stay afloat. Unfortunately for the Frigons, their eleven paintings were part of those sales. After discovering that the gallery had sold all the paintings and could not remit any payment to them, the Frigons reported a loss to their insurance company, Pacific Indemnity Company, with whom they had a policy that covered “all risk of physical loss” to the works. Pacific Indemnity denied their claim, arguing that the Frigons had not suffered a loss under the policy and that the loss was nothing more than a business debt, which was not covered under the policy. The court disagreed.
In determining that the Frigons’ loss was covered under the “all risk of physical loss” language, the court reasoned that “[a]s far as [the Frigons] are concerned at this point in time, the conduct of the Gallery toward their paintings is no different than had the Gallery taken the paintings and destroyed them.” Accordingly, the court ruled in favor of the Frigons and held, among other things, that they had met their burden of showing a covered loss under the policy.
This case, decided in 2007, caused many insurance carriers to take a closer look at their fine art policy language. Many commentators suggested that carriers include a requirement of advance notice from the insured should any covered works be placed for consignment. Although the case did not identify the amount of coverage the Frigons obtained for the works, this case tangentially highlights the importance of properly updating the values of work with qualified appraisals for insurance purposes. Because the works were originally purchased for $1 million and then later valued at $1.6 million, their insurance policy should have reflected this increase.
Chris Michaels is an attorney at The Chartwell Law Offices, where he focuses his practice on art law and related transactions. He can be reached at 518-421-7238 or via email at email@example.com.
1.Frigon v. Pac. Indem. Co., No. 05 C 6214, slip op. (N.D. Ill. Jan. 16, 2007), reconsideration denied, No. 05 C 6214, 2007 U.S. Dist. LEXIS 17813 (N.D. Ill. Mar. 14, 2007).