What should collectors consider when they lend to third parties? Here’s an expert view from Zilkens Fine Art Insurance Broker
When a collector is approached by public institutions, such as a museum, to lend a piece of art for an exhibition, he knows that he has gone a step further in the collector’s world. Depending on the institution, the collector receives a loan contract of one to ten pages. Some are very detailed. Others very generous. Almost all State Museums, exhibition halls and other publicly funded institutions are constantly short on money. Therefore, they try to control as much as possible the borrowing of artworks in order to cut the costs.
This affects the conveyance, the packaging or the odd shipper chosen to bring the works to the institution. There is a rule which exactly describes the risks artworks are facing when being transported: you get what you pay for! Cheap transport and cheap packaging are most of the time a guarantee for having a damage on the way. And, frankly, the same may be applicable to insurance solutions for exhibitions.
The rule “nail to nail-all risks” which is a synonym for a broad contract usually offered for exhibitions does not describe in detail what is exactly covered. Warranties are also integrated in policies; these depend on who is the policyholder and who can spoil the insurance by disregarding them.
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Let’s take an example: the theft of the “Big Maple Leaf”, a massive 100-kilogram gold coin (worth around 3.750.000 EUR) from the Bode Museum, Berlin, in 2017. The insurer noted the non-respect of more than 15 guarantees, which led to a drastic reduction in the payment of indemnities.At the end, the lender received only 50% of his loss and it might be nearly impossible to fight for the other half against the Museum, which is a state-owned institution.
Nowadays most institutions, shippers and forwarders – especially in countries governed by case law principles like the United States of America or Great Britain – ask for a waiver of subrogation, except in cases of wilful act or gross negligence. For insurance companies, this may lead to a principle of exclusion of cover, when they have not accepted this although their normal scope of recovery is limited to the boundaries of CMR or 8,33 Special drawing rights per kilogram.
A Picasso weighing 10 kg in a perfect packing of 100 kg and worth 10 million EUR represents a recovery right of approximately 1.000 EUR in case of minor negligence. For wilful act and gross negligence, there is no limit in liability.
So, collectors should know the content of the insurance contracts from the borrowing institutions. But, even if they know them, loans are at risk as condition reports are expected by insurers each time objects are packed or unpacked. And furthermore, during travelling exhibitions when there is a change of risk carrier from one museum to the other – probably including different jurisdictions and partly state indemnity. Condition reports are not executed by international standards but by individuals – mostly restorers who work with their best knowledge and experience – but who do not necessarily have the same understanding about what they see and what they document.
Most collectors insure their collections because the market value of the collection often rises in a higher proportion than other assets which need to be protected against sudden and accidental risks that cannot be controlled. But not only the value counts – there is no need to subsidise institutions by accepting their insurance contracts when they borrow. The contracts have the institution as insured and sometimes the collector as co-insured – which does not help him in case of warranties or forgotten condition reports. Depending on individual circumstances, it is very difficult and time-consuming, if not nearly impossible to prove where and when damage occurred. Whereas all these problematics would not arise if the collector took out an individual insurance policy.
Values are normally agreed ones and pull away all discussions about evaluation. The insurer knows the condition of the work, so that all changes due to sudden and accidental occurrence fall under the policy, if they are not expressively excluded (like war on land or inherent vice). There is no need to prove the exact location where the claim arose as the insurance is in place on a yearly basis. The insurance covers the work of art wherever it is or as an endorsement, and this specifically for the loan in question. The premium for this section can be paid by the borrowing institution.
At the end, only one rule prevails: The lender decides! (About where, when, how and how long). By this, the lender keeps control of his belongings, and even better with the help of a professional specialized art insurance broker.