Insurance Values For Art

[Shayla]

A customer wants to insure his two paintings, and we know what they currently sell for at the artist's gallery, but should he be insuring them for more? When watching Antiques Roadshow, I've seen appraisers say the following. My paraphrase goes like this, 'In a retail setting or at auction, this painting would likely sell for $15,000.00. So, I'd suggest insuring it for $20,000.' I'm curious as to why this is, and would appreciate any replies. Thanks.

 

[wpfay]

I see it as similar to the "Retail" pricing in the health industry vs. what the insurers view as "Reasonable and Customary". Buying additional insurance beyond the ticket price just ups your cost of insurance, not what you will be reimbursed in the event of a loss.

The customer should really be having the conversation with their insurer to see what they will require to buy insurance on potential future value. My guess is that without significant recorded secondary art sales at open auctions by the artist citing similar works (auction comparable), the amount eligible for reimbursement is on the purchase receipt. Retail sales from a private gallery do not establish open market value.

The policy needed is a Personal Articles Floater (PAF) and the values can be established by a formal written appraisal by an approved appraiser. Again check with insurer about who they will accept appraisals from before spending the money.

Jerry Feig knows way more than I do about this, and maybe he'll chime in.

 

[JFeig]

At one time I completed the training as a certified personnel property appraiser. There are at least 3 classifications in the insurance industry for the replacement value of property to be insured where a value if lost, stole, damaged, or destroyed. They are A) replacement cost new, B) replacement cost deprecated, C) replacement cost equivalent. There is also a difference between wholesale and retail values. As an example the replacement value for a car is usually at wholesale and not what you paid at a dealer for the car.

As far as an artist having their art insured in a gallery they are only entitled to recover the value of what they would have received if the art was sold and not the "retail" value. Anything more would be considered "enrichment" in their favor by a court in the USA.

Another factoid, the artist and an anyone else who bring in something into you shop should have their art insured by themself, as a homeowners policy or a business policy. This can be either scheduled or unscheduled property.

Also note that "fair market value" is an established IRS definition and not from the insurance industry, although they use the term.

• Fair market value is defined in Treasury Regulation §1.170A-1(c)(2) as, "The price at which property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts." Treasury Regulation §20.2031-1(b) expands upon this definition, "The fair market value... is not to be determined by a forced sale nor is the fair market value of an item to be determined by a sale within a marketplace other than that in which the item would be most commonly sold to the public, taking into consideration the location of the item wherever appropriate."

 

[Shayla]

Thanks, guys! The funny thing is, he called me because he'd just been to his insurance agent. The agent said he should get his art appraised, to make sure it was adequately covered, so he called me. You'd think those folks would already know what to tell him. I'll be sure to pass along your comments.

 

[Shayla]

Another factoid, the artist and an anyone else who bring in something into you shop should have their art insured by themself, as a homeowners policy or a business policy. This can be either scheduled or unscheduled property.

I'd appreciate an elaboration on this. Specifically, if a customer's work was damaged in our shop, how would their/our experiences of the coverage process vary, depending on whether it was insured on their end. Thanks much for your replies.

 

[JFeig]

My expertise is on the appraisal side and not with all the clauses in an insurance contract. However, my personnel knowledge regarding via talking with my insurance agent is that the owners homeowners insurance will cover fire, theft, water damage, vandalism, etc. of the property covered by the owner. It WILL NOT cover any damage incurred by a service provider due to their mishandling or neglect of the property.