FINE ART INSURANCE ISSUES: A SELECTED CASE LAW SURVEY
By
Jamie K. Baker
Thompson, Coe, Cousins & Irons, L.L.P.
Dallas, Texas
and
Darrell S. Cockcroft
Thompson, Coe, Cousins & Irons, L.L.P.
Austin, Texas1
Spring 2012
I.
INTRODUCTION
Fine Art insurers are often faced with unique claim facts due to the nature of the asset at
risk. When these facts give rise to coverage questions, the insurer may seek a legal coverage
opinion prior to accepting or denying the claim. When a coverage opinion is sought, it is
counsel’s job to research and analyze legal precedent in light of the facts and the insurance
policy at issue, and determine how courts have historically evaluated the same or similar
questions. However, there is a dearth of case law interpreting Fine Art insurance issues. In fact,
cases addressing the topic of Fine Art insurance have been decided in only a few U.S.
jurisdictions.2
This article takes a survey of selected case law to assist insurers and their legal counsel
identify and better understand certain Fine Art insurance issues upon which courts have provided
guidance. The surveyed cases address entrustment, excluded risks, coverage amount and policy
formation, fraud and forgery, and valuation and appraisal (with reference to the jurisdictions in
which they were decided). This article is not intended as a treatise on all existing art insurance
issues. Instead, it is hoped that this information will provide a quick reference for insurers and
counsel to better understand legal issues relevant to Fine Art insurance.
A.
ENTRUSTMENT
AXA Art Insurance Corporation v. Renaissance Art Investors, LLC
32 Misc 3d 1223(A), 936 N.Y.S.2d 57, 2011 N.Y. Slip Op. 51397 (U) (July 25, 2011)
Supreme Court, New York County, New York
Unreported Disposition
Synopsis of Art Insurance Issues: Fraud exclusion applied when a principal of RAI defrauded
his business partners, selling off several hundred pieces of artwork, via his separate consignment
business/Gallery, without informing RAI and without transferring the proceeds of the sales to
1
The authors would like to thank Lindsey Shine Lawrence (Thompson, Coe, Cousins & Irons, L.L.P. Dallas) and
Jessica Kirker (Thompson, Coe, Cousins & Irons, L.L.P. Austin) for their invaluable assistance with this article.
2
This article does not include case law that may have been decided outside of the United States.
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RAI. Specifically, the court determined that the artworks were “entrusted” to the consignment
company even though RAI was deceived by their business partner as to his intentions.
Holding: Insurer was entitled to summary judgment based on the court’s interpretation of the
policy’s fraud exclusion.
Zurich American Insurance Company v. Felipe Grimberg Fine Art, et. al.
2008 WL 394808
United States District Court, S.D. New York
Not reported
Synopsis of Art Insurance Issues: Plaintiff argues Tablao Flamenco, a painting owned by him,
was stolen from him by dealer Michael Cohen as part of a criminal scheme/trick/larceny, and
that because the painting was acquired in this manner, consideration was lacking and title to the
painting never passed from Plaintiff to Cohen. Plaintiff had Tablao Flamenco delivered to
Cohen from Italy in order for Cohen to secure a buyer for the painting. Prior to shipping the
painting, Plaintiff increased his transit limit of insurance coverage on the piece. The painting
was then delivered to Cohen’s warehouse. Cohen secured a buyer and told Plaintiff he would
pay him when he received payment from the buyer. Cohen later informed Plaintiff he had two
Chagall paintings he was selling. Plaintiff agreed to buy the Chagall paintings in exchange for
forgiving the debt Cohen owed from the sale of Tablao Flamenco as well as an additional
payment of $885,000.00. Cohen then told Plaintiff he had a buyer for the Chagall paintings so
Plaintiff never picked up the paintings. Several months later, Cohen was sued by Sotheby’s for a
$10 million debt. Cohen left town shortly thereafter and Plaintiff never received any of the
proceeds for the sale of the Chagall paintings. Plaintiff then filed a claim with Zurich for the
alleged loss of Tablao Flamenco. Plaintiff asserts that because stolen property is covered under
the policy with Zurich, Tablao Flamenco is covered. Zurich argued the painting was not stolen
in the course of delivery as delivery was completed when the painting reached Cohen’s
warehouse and he took possession.
Holding: The court determined that delivery of Tablao Flamenco was completed, under New
York’s Uniform Commercial Code, and that any fraud occurred after the delivery and the
transference of title from Plaintiff to Cohen. The court held that the fraud or theft exception to
delivery of title does not apply to this case because Plaintiff assumed the risk of transferring title
of the painting to Cohen without a written contract.
Zurich American Insurance Company v. Felipe Grimberg Fine Art, et. al.
324 Fed Appx 117 [2d Cir 2009]
United States Court of Appeals, Second Circuit
Not selected for publication in the Federal Reporter
Synopsis of Art Insurance Issues: On appeal, Felipe Grimberg sought review of the 2008
summary judgment in favor of insurer Zurich on his claim for the loss of the Tablao Flamenco
painting, arguing his voluntary transfer of the painting to dealer Michael Cohen was voidable
because it was procured through larceny by false promise. Grimberg argued the district court
erred in concluding that he was barred by the judicial estoppel doctrine from asserting that he did
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not sell the painting and the Second Circuit Court agreed, though the issue was not dispositive.
Although Grimberg argued in a 2002 proceeding to determine ownership to another painting, La
Visite, and stated a claim on the ground he had purchased it from Cohen for a price that included
forgiveness of the debt for the Tablao Flamenco, judicial estoppel did not apply because the
court in the prior proceeding rejected Grimberg’s claim to La Visite and nothing in the record
indicated his position in the prior litigation was adopted by the court in any manner.
Additionally, Grimberg asserted claims under New York’s Uniform Commercial Code, stating
that he retained title to the painting and the transfer was voidable due to fraud, deceit, and
larceny. The appellate court agreed with the district court that Grimberg’s arguments were not
supported by the UCC provisions. Finally, Grimberg argued on appeal that he had an insurable
interest in the Tablao Flamenco under Section 2-501 of the UCC, however the Court found that,
even assuming Grimberg retained some right to challenge Cohen’s title as voidable, he could not
demonstrate that the interest is one that falls within the policy’s definition of “property insured.”
Holding: On appeal, the owner of the Tablao Flamenco was not judicially estopped from
asserting a continuing insurable interest in the painting, however even if the art dealer’s title to
the painting was voidable, the owner could not rely on UCC provisions to have title declared
invalid ab initio and the owner’s right to change the art dealer’s title was not an insurable interest
in the painting.
Redland Ins. Co. v. Lerner
356 Ill. App. 3d 94, 824 N.E.2d 1096 (2005)
Appellate Court of Illinois, First District, Fifth Division
Synopsis of Art Insurance Issues: This dispute arises from the conversion of an original oil
painting by Picasso. The painting, owned by the estate of Nora Bergman, was consigned to a
gallery. At the time of consignment the painting was insured by a first-party property insurance
policy issued by Redland. The Redland policy was a value policy, which placed a value of
$858,000 on the painting. While the painting was in the custody and control of the gallery, an art
dealer was allowed to remove the painting from the premises to show a potential buyer. The
dealer tendered a check for the purchase of the painting to the gallery for $2.1 million, but
shortly thereafter stopped payment on the check. It was later learned the painting was valued at
$4.5 million and that the dealer had sold it for an amount in excess of $4 million. The estate then
sued the gallery to collect the value of the painting.
Zurich had issued a Fine Art Dealers’ Association of America insurance policy to the gallery,
which declared the value of the painting to be $2 million. The estate settled its claim with Zurich
and the gallery for a little over $2 million in exchange for a release and assignment agreement as
well as a subrogation and assignment agreement, releasing the estate’s claims against the gallery
and Zurich and assigning the estate’s interests in the painting and the Redland policy to Zurich.
Redland then filed a declaratory judgment action seeking a declaration that it had no duty to
indemnify the estate or its assigns for any loss arising from the conversion of the painting.
Holding: The court affirmed the granting of summary judgment for Redland, for reasons
different than those stated by the trial court. The Redland policy was determined by the court to
be excess insurance. Conversely, the Zurich policy expressly permitted the insured to maintain
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excess insurance. Accordingly, the Redland policy would not be triggered until the Zurich
policy was exhausted. The court stated that had the Redland policy not been a valued policy
with respect to this painting, excess coverage may have been triggered, with Redland potentially
liable to pay up to the limits of coverage or the market value of the painting. However, as the
Redland policy was a value policy with respect to this painting, the parties stipulated to the
amount to which the estate would be entitled as damages in the event of a total loss. As the estate
received more than those damages (via the Zurich settlement), no recoverable damages could be
shown under the Redland policy. The court further noted that Zurich failed to explain how
equity favors a result where the primary insurer pays less than the agreed value stated in its
policy by forcing payment from an excess insurer with a lower agreed value. The court stated
Zurich’s relief looks more like a claim for equitable contribution (a claim it cannot pursue) than
subrogation.
Clark v. Meyer
188 F.Supp.2d 416 (S.D.N.Y. 2002)
United States District Court, Southern District of New York
Synopsis of Art Insurance Issues:
The owner of a painting entrusted it to Catalina Meyer for
the purpose of finding a buyer under the condition it would be insured for $200,000, a value
provided by the owner based on an alleged oral valuation by H. Lester Cooke of the National
Gallery of Art Expert Opinion Program. After the painting was destroyed in a fire, it was found
uninsured due to the expiration of the insurance covering the painting. The painting’s owner
then sued the Meyer estate to recover the insurance value directly from the estate. Although
Meyer had a homeowner’s policy, there was no specific coverage for the entrusted painting at the
time of the fire and the estate did not assert that the contents coverage satisfied any purported
contractual obligations to the owner regarding the painting. Additionally, the estate disputed the
painting’s valuation, arguing there was no evidence of higher value and that it was not what
Cooke and the painting’s owner thought it to be but rather a fake work of low value. The Court,
however, examined whether the evidence supported that Meyer promised to insure the artwork at
a value of $200,000 rather than trying to determine the actual value of the painting.
In evaluating the available evidence, the Court applied the “dead man’s statute” and barred the
painting’s owner from introducing testimony of communications with the deceased Meyer,
including communications regarding the oral promise of Meyer to insure the painting for
$200,000 as long as it was in her possession. The dead man’s statute does not apply to
documentary or other tangible evidence, thus a letter from Meyer was admissible in which she
notified the owner that she had insured the painting while in her possession and stated that the
insurance company would pay the full amount that the painting was insured for in case of
damage or accident. The Court concluded that there was no issue of material fact that Meyer
agreed to insure the painting for $200,000 while it was in her possession, however there
remained a question as to whether the insurance policy would provide a guaranteed value of
$200,000 in the event of loss or damage or if the painting was insured for its value at the time of
loss up to an amount of $200,000. Because the only admissible proof of value was testimony
placing it at $8,000, the Court found that defendants were entitled to cap the value at $8,000.
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Holding: The Court held the painting’s owner was entitled to summary judgment to the extent
that defendants’ testatrix breached the contract by failing to maintain insurance in effect at the
time of the loss. The Court additionally held that the owner was precluded from offering
evidence that the value of the painting exceeded $8,000, however in the event the owner could
establish that Meyer contracted to provide insurance that would pay a guaranteed value of
$200,000 in the event the painting were destroyed, the plaintiff would then be entitled to recover
the $200,000 sum.
B.
EXCLUDED RISKS
Jablonski v. Barton Mut. Ins. Co.
291 S.W.3d 345 (Mo. Ct. App. 2009)
Missouri Court of Appeals, Western District
Synopsis of Art Insurance Issues: Plaintiff was invited to present a solo exhibition of her
ceramics at the Daum Museum of Contemporary Art in Sedalia. To prepare a catalog for the
exhibition, Plaintiff moved twenty-two pieces of artwork from her home to a commercial
building for photographing. A fire consumed the building and destroyed all of the artwork,
valued at $69,900. Plaintiff made a claim under her homeowner’s policy for the full value of the
artwork under her personal property coverage. Defendant declined to pay the full amount based
on policy language limiting “business property” losses to $2,500.00. The policy defined
“business” as “a trade, a profession or an occupation including farming, all whether full or parttime.”
In considering whether an insured is engaged in “business” activities, courts generally look for
evidence of a “requisite profit motive and business continuity.” Defendant presented evidence
that Plaintiff has exhibited and sold pieces of her artwork; participated in more than 100 art
shows and exhibits, where her ceramic sculptures were often available for sale; worked with an
art dealer and provided various museums and galleries with price lists for her artwork. Defendant
also argued that Plaintiff’s prolific artistry was a significant factor in her promotion from
assistant professor to a fully-tenured position at UCM. Plaintiff countered by testifying that she
did not create ceramic artwork with the intention of selling it; that she earns her living as a
professor, producing the art at home without a profit motive; participates in shows/exhibits as a
way of seeking artistic recognition; provides price lists for insurance purposes; does not advertise
her pieces for sale; does not have a website; and has only sold 9 pieces in 26 years of
participating in shows/exhibits. The court held there was a fact question regarding the
characterization of the work, therefore the trial court did not err in denying the motion for
directed verdict.
Defendant also argued Plaintiff was not entitled to pre-judgment interest because damages were
unliquidated and could not be readily ascertained by computation or any other recognized
standard. The court determined that under the homeowner's insurance policy, Plaintiff was
entitled to payment for the value of her damaged property. Thus, the amount due was fixed, by
the insurance policy itself, as the value of her artwork. The value of her artwork was contained in
a written demand from Plaintiff and later supported at trial by the testimony of two experts—an
art dealer and the director of an art museum. The mere fact that Defendant sought to limit
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coverage under the business property exception did not convert Plaintiff’s claim into one for
unliquidated damages.
Holding: A fact issue existed in determining whether or not Plaintiff’s artwork was “business
property” therefore denial of Defendant’s motions for directed verdict was proper. Further,
Plaintiff was entitled to pre-judgment interest as her damages were fixed by the insurance policy
itself.
Stone v. Rullo Agency, Inc.
40 A.D.3d 1185, 834 N.Y.S.2d 588 (2007)
Supreme Court, Appellate Division, Third Department, New York
Synopsis of Art Insurance Issues: Plaintiff filed suit against Defendant, an insurance agency,
based upon an alleged failure to procure full coverage for Plaintiff’s collection of artwork and
other similarly unique items of personal property. Plaintiff conceded he did not specifically
schedule the items on his application for insurance. Plaintiff further testified at trial that
although he received the policy, he never actually read it. The policy expressly excluded
“articles of art or rarity that cannot be duplicated.” As a result of the exclusion, Plaintiff did not
receive payment for the replacement of the art following a fire that destroyed his home and its
contents.
Holding: The court held that once plaintiff received the policy, he was presumed to have known
its contents—including its exclusion of certain types of personal property from replacement
value coverage—and to have assented to them. The court determined this conclusive
presumptive knowledge of the terms and limits of the policy, defeated his causes of action for
negligence and breach of contract as a matter of law. Defendant’s motion for summary judgment
was granted and the complaint was dismissed.
Studio Frames, Ltd. v. Village Insurance Agency, Inc.
1:01CV876, 2003 WL 1823519 (M.D.N.C. Apr. 2, 2003) aff'd in part, rev'd in part sub nom.
Studio Frames Ltd. v. Standard Fire Ins. Co., 369 F.3d 376 (4th Cir. 2004)
United States District Court, M.D. North Carolina
Not Reported
Synopsis of Art Insurance Issues: Plaintiff, an art gallery, suffered flood damage as a result of a
hurricane. Plaintiff sought payment for replacement of “marketing materials” which included
printed art cards, transparencies, and slides depicting pieces of art that had been exhibited at the
gallery. (In order to promote artist exhibitions, Plaintiff had art cards printed that were used as
invitations and handouts to provide information to prospective buyers.) The insurer denied
coverage for the replacement of these marketing materials under the “valuable papers” exclusion.
Neither the policy nor any applicable flood insurance statutes or regulations define “valuable
papers” so the court turned to the American Heritage Dictionary definition of valuable for
guidance—“having considerable monetary or material value for use or exchange; of great
importance, use or service; valuable information.” With this definition and the construction
principle ejusdem generis, the court determined the marketing materials had significant value to
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Plaintiff, above and beyond the paper on which they were printed, thus they fell within the policy
exclusion and were not covered.
Holding: The court held the marketing materials were “valuable papers” with an inherent or
significant value to Plaintiff and that it is the cost to replace that inherent value that the policy
excludes.
On appeal: reversed in part on other grounds - The Fourth Circuit Court of Appeals concluded
the district court erred in dismissing Studio Frames’ claim for failing to file a proof of loss for
damage to its leasehold improvements without first determining whether Standard Fire
repudiated the policy.
Equity Diamond Brokers, Inc. v. Transnational Ins. Co.
2003-Ohio-1024, 151 Ohio App. 3d 747, 785 N.E.2d 816 (Oh. Ct. App. 2003)
Court of Appeals of Ohio
Synopsis of Art Insurance Issues: Equity Diamond Brokers (“EDB”), a retail and wholesale
jeweler, brought suit against its insurer seeking coverage and damages for the denial of coverage
related to the theft of jewelry from EDB salesman Brian Higgins after he left three bags
containing trays of jewelry in the backseat of his vehicle while he ate in a restaurant at the front
window so that he could see his vehicle at all times. When Higgins saw another vehicle parked
perpendicular to his, he ran outside but the thieves sped away. Coverage was denied based on the
unattended vehicle exclusion because Higgins was not “actually in or upon” the automobile at
the time of the theft.
Notably, EDB specifically declined the expensive unattended vehicle coverage because the
company had a policy that vehicles should not be left unattended. Policies from previous years
had all contained unattended vehicle exclusions with language similar to the policy in effect at
the time of the theft. Despite the company policy not to leave any vehicle unattended, Higgins
testified that it was his understanding and an unwritten company policy that a vehicle was not
considered unattended as long as it was in the salesperson’s sight. The Court interpreted the
phrase “actually in or upon the vehicle” and agreed with the reasoning of a majority of cases
finding similar policy language to be unambiguous and to require the insureds to be literally in or
upon their vehicles at the time of the loss, even though the insureds may have been only a short
distance away from the vehicle, watching the vehicle, or absent from the vehicle for only a short
period of time. The Court noted that jeweler’s block insurance is a special type designed to offer
a single policy to adequately cover the risks inherent in the jewelry business and that, in this
case, EDB specifically assumed the risk by declining unattended vehicle coverage.
Holding: Under the plain language of the policy, the Court found there was no coverage because
neither Higgins nor any other EDB employee was in or upon the vehicle at the time of the theft
and thus the unattended vehicle exclusion applied to bar coverage.3
3
Although technically not a fine art policy issue, this case is included for its discussion of a related type of loss
while in transit.
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Pieper et. al. v. Commercial Underwriters Insurance Company
59 Cal.App.4th 1008 [69 Cal.Rptr.2d 551] (1997)
Court of Appeal, Second, District, Division 3, California
Rehearing and Review denied
Synopsis of Art Insurance Issues: Insureds brought an action against the insurer for breach of
contract for denying coverage for loss of fine arts (collection of ceremonial masks) as a result of
a brush fire. Insurer denied coverage based on the “brush fire exclusion.” The coverage issue
raised was whether the fire, which was caused by arson, was a covered risk or an excluded risk
under the brush fire exclusion clause of the relevant policy. The insureds argued that because the
fire was caused by arson, it did not fall within the exclusion. The court determined the fire was a
brush fire, and thus an excluded risk, despite the origin of the fire—arson—as it burned a certain
type of vegetation (chaparral) for several miles before destroying the fine art collection.
The insureds also argued that the exclusion violates the efficient proximate cause rule for
concurrent or multiple causation cases. In order for the efficient proximate cause theory to
apply, there must be two separate or distinct perils which could each, under some circumstances,
have occurred independently of the other and caused damage. The court determined there was
only one cause of damage here, the brush fire, and that labeling it an “arson fire” only artificially
divided it into two separate perils.
Holding: (1) the efficient proximate cause doctrine was inapplicable to a brush fire that was
begun by arson and subject to the policy exclusion for loss or damage to fine arts directly or
indirectly occasioned by brush fire, and (2) loss resulted from brushfire.
C.
COVERAGE AMOUNT AND POLICY FORMATION ISSUES
Thomson & Pratt Ins. Co. v. Department of State
GSBCA No. 15979-ST, 05-1 B.C.A. (CCH) ¶ 32944 (Apr. 8, 2005)
General Services Board of Contract Appeals
Synopsis of Art Insurance Issues: This dispute concerns the Government’s termination of its
contract with Thomson & Pratt Insurance Associates, Inc. (“T&P”) for default of a contract
awarded for insurance coverage for works of art on loan to the Department of State (DOS) as
part of the Art in Embassies Program. In defense of its non-performance, T&P argued that the
Government had imposed a cardinal change on the contractor subsequent to the contract award
and that such action excused future performance. Over the years, the DOS had purchased
specific amounts of insurance coverage for works on loan to its program, typically purchasing a
blanket agreement for worldwide coverage up to a given cap amount with separate caps for
specific locations and art in transit. For such coverage, it had been the practice of the DOS to
provide the insurance carrier or broker with a schedule or list of art that was in the program at
various intervals during the policy.
In preparing the solicitation for procurement of the insurance policy at issue here, the contract
specialist was advised by the program manager that the program required $30 million of
insurance coverage worldwide. The contract specialist, without knowledge of the differences
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between blanket and scheduled insurance policies, drafted a solicitation in the form of a request
for quotations (RFQ) with the objective of obtaining a total aggregate of coverage in the amount
of $30 million. The RFQ sought a single fine art insurance policy to run for six months with an
option to extend coverage, and contained the statement that “[t]here is no unscheduled property.
All property is scheduled…” Upon receiving the RFQ, T&P forwarded the request to
Huntington Block Insurance Agency, a fine arts specialty agency. The Huntington Block
representative, among others, found the language of the RFQ confusing because it stated a
requirement for $30 million in coverage and that there was no unscheduled property but
nevertheless listed scheduled property only amounting to approximately $18 million. In
response to the RFQ, T&P sent the DOS a letter outlining several coverage options with different
premiums and then submitted a revision known as a “margin clause,” stating that no premium
adjustment would be made unless the total scheduled values exceed $20,150,000. (Notably, in
the post 9-11 environment, the majority of the premiums quoted represented terrorism coverage
as the cost of terrorism coverage had skyrocketed.)
The DOS offered T&P a contract to provide twelve months of coverage at the premium quoted
for an aggregate coverage amount of $30 million, however the contract did not make any
mention of the insurance premium being adjusted subject to an increase in the actual value of art
on loan beyond a total value of $20,150,000. In contrast, the policy issued by T&P contained an
aggregate amount insured endorsement stating that the premium for the policy was based on total
values at risk of $18,744,410 and that no adjustment in premium would be made unless the
values at risk exceeded $20,150,000. The total value of the artwork in the program quickly
surpassed the $20,150,000 threshold and T&P demanded additional premium, which the DOS
rejected and instead demanded that T&P immediately provide the $30 million in coverage at the
agreed price. Upon receipt of additional premium invoices, the DOS notified T&P that it would
terminate the contract if the full $30 million in coverage was not provided for the contract price.
Subsequently, the DOS terminated T&P’s contract for cause, stating T&P was in breach by
failing to provide the insurance coverage as required under the contract.
The Court noted that, despite the complex factual background, the fundamental issue of the case
was a relatively simple one – to determine if the Government’s termination of T&P’s contract
was proper. The failure of T&P to continue performance, even while in dispute, was a serious
one and contract interpretation disputes do not normally discharge a contractor from its
obligation to continue performing. The Court found that even if the Government’s requirement
under the contract did change after it began, it did not amount to a cardinal change. Where the
Government seeks a change in contract requirements and the contractor is prepared to meet the
demand solely by a proportional increase in contract price, such a change is obviously not
outside the scope of the contract or a drastic alteration as to be considered a cardinal change.
The Court further found that the record amply supported the conclusion that the Government’s
requirement stated in the RFQ was decidedly ambiguous. Notably, despite the confusing and
ambiguous nature of the Government’s RFQ, there was no evidence that T&P sought any
clarification from either the DOS contracting officer or contract specialist. Nor did Huntington
Block seek to resolve the conflicts apparent on the face of the RFQ, instead belatedly criticizing
the RFQ. The time for resolving ambiguities was prior to the submission of T&P’s quotes. The
Court noted that the Art in Embassies Program is, by its nature, continually in flux and that not
only items but locations of items were subject to change. Because the coverage sought was of a
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blanket nature, the location of items would not necessarily be of paramount importance even
after September 11, 2001.
Holding: The Government’s termination of T&P’s contract was entirely justified and was
supported by an express contract provision permitting termination in such circumstances
involving lack of performance. Therefore, the Government’s decision to terminate its contract
with T&P for default was affirmed by the General Services Board of Contract Appeals.
Eboigbe v. Zoological Society of Cincinnati
96 Ohio App. 3d 102, 644 N.E.2d 693 (Ohio Ct. App. 1994)
Court of Appeals of Ohio, First District, Hamilton County
Synopsis of Art Insurance Issues: Plaintiff was invited by Defendant to display and sell his
wood sculptures as part of its “Month of Africa” exhibit. After Plaintiff’s sculpture Fulani
Mother and Child was placed in the exhibit, it fell (for unknown reasons) causing the
decapitation of the female figure. During the delivery of the sculptures, Plaintiff and Defendant
had entered a consignment agreement which provided that Defendant would assume all risk of
loss for damage or destruction, insure the pieces, and name Plaintiff a beneficiary of that
insurance policy. That same day, Defendant received Plaintiff’s price list for all of his pieces
and the sculpture at issue was listed for $350,000.00. Defendant’s insurance company orally
notified the Defendant that an endorsement to its main policy had been obtained, however the
written endorsement was not prepared until eleven days after the sculpture was damaged. The
insurer asserted that it never agreed to a value of $350,000.00, instead, as is typical of fine arts
coverage, the insurer planned to value any damaged pieces at the time a claim was filed. Several
experts testified as to the value of the sculpture. Ultimately the Judge determined it was worth
$120,000.
At issue on appeal was (1) whether the trial court erred in denying Defendant’s Civ. R. 41(B)(2)
motion, which it made on the grounds that Plaintiff failed to provide probative evidence of
market value for the piece; (2) whether the trial court erred by finding Defendant was an “art
dealer” as defined by R.C. 1339.71(A); and (3) whether the trial court’s failure to address
Plaintiff’s contract claim was error.
Holding: First, the trial court did not err in denying Defendant’s 41(b)(2) motion. The fact that
no one had yet sought to purchase the artist’s recognized masterwork did not mean that it lacked
currency in the art market. In determining the value of the piece, the court was free to consider
insurance figures, artist’s asking and selling price, sales of lesser pieces, artist’s reputation in the
art world and expert opinions. Second, the trial court erred by granting Plaintiff’s motion for
partial summary judgment finding Defendant was an “art dealer” as the court does not interpret
the definition to mean a zoo, which periodically exhibits and offers art to raise funds to further its
primary mission of operating a zoo, necessarily is engaged “in the business” of selling art. To
make such a determination, a fuller development of the evidence is necessary with respect to the
size and nature of the role the exhibition and sale of art plays in the bigger picture of the
Defendant zoo’s operations. Third, the trial court’s failure to address Plaintiff’s contract claim
was error as it represented an alternative theory of recovery of potentially a higher amount than
the sculpture’s fair market value.
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D.
FRAUD AND FORGERY
Flaum v. Great N. Ins. Co.
28 Misc. 3d 1042, 904 N.Y.S.2d 647 (Sup. Ct. 2010)
Supreme Court, Westchester County, New York
Synopsis of Art Insurance Issues: Plaintiffs brought this action against Defendant property
insurer, alleging breach of insurance policy based on Defendant’s failure to provide coverage for
a painting Plaintiffs claimed was a forgery. Plaintiffs purchased a “Renoir” for $50,000.00 from
Sotheby’s and had it insured for $350,000.00. Plaintiffs attempted to sell the painting years later
through Christie’s, however it was rejected. Plaintiffs allege an employee told them the painting
was rejected because it was a forgery, however the employee did not put this in writing.
Plaintiffs filed a claim for the “loss” of value of the painting and sought $525,000.00. The claim
was denied on the ground that Plaintiffs had “not sustained a physical loss” under the terms of
the insurance agreement. The court noted that Plaintiffs had not conclusively established the
painting was a forgery. However, for arguments sake the court assumed the painting was a
forgery, and determined that Plaintiffs failed to show how their loss was covered under the
policy. The policy provided for “coverage against physical loss if your valuable articles are lost,
damaged or destroyed.” Plaintiffs admitted the painting still hung in their home in substantially
similar condition as when it was purchased, thus the court determined no “physical loss” had
occurred. The Court went one step further and noted that even assuming that the forgery or fraud
resulted in a physical loss, the loss occurred when the painting was purchased, not when the
forgery was discovered.
Holding: Discovery that an insured painting was a forgery does not result in a “physical loss”
under “Valuable Articles Coverage” therefore Plaintiffs were not entitled to payment under their
insurance policy. Further, even if the forgery was a covered peril, then the loss occurred at the
time of purchase not at the time the forgery was discovered.
Certain Underwriters at Lloyd’s, London v. Cooperman v. Cooperman
289 Conn. 383, 957 A.2d 836 (Conn. 2008)
Supreme Court of Connecticut
Synopsis of Art Insurance Issues: This appeal arose from two underlying actions brought by
several insurers against Steven and Nancy Cooperman, alleging fraudulent conveyance, statutory
theft, conversion, and conspiracy.
In the 1990’s, Steven Cooperman acquired two paintings by Pablo Picasso and Claude Monet
that were insured by Plaintiffs for $5 million and $7.5 million, respectively. In 1992, Steven
reported the paintings stolen from their home and filed a claim, which was denied and later
settled by the insurers for $17.5 million. In 1998, Steven Cooperman was indicted on various
fraud charges stemming from his insurance claim against the insurer Plaintiffs under allegations
by the government that the theft had been staged for the purposes of committing insurance fraud.
He was convicted in 1999 of eighteen counts of insurance fraud in connection with the claimed
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theft as well as tax evasion on a portion of the settlement. As part of a plea for the criminal
charges, Steven agreed to pay Plaintiffs $3.5 million in restitution and admitted liability to $3
million in unpaid taxes. Because the majority of his assets were in real estate and other property
in which he shared ownership with his wife, Nancy, Steven had insufficient cash to pay the sums
to the Plaintiffs and the IRS, needing an additional $2.6 million. Nancy possessed sufficient
cash, but was unwilling to give the funds to Steven unless she received assets in return, as the
marital relationship was strained after Steven’s criminal conduct. (Nancy ultimately brought
divorce proceedings in 2002.) Nancy agreed to transfer $2.6 million of the $5 million held as
bail (in which Steven had relinquished any community property interest) in exchange for certain
property and investments.
In 2000, after the conviction but prior to sentencing, the insurer Plaintiffs commenced a civil
action against Steven Cooperman in California to recover damages resulting from the fraud. The
California Superior Court rendered judgment for Plaintiffs for $22 million in damages.
Thereafter, the Plaintiffs commenced the two underlying actions at issue in this appeal, alleging
that sale of assets from Steven to Nancy constituted a fraudulent conveyance that intentionally
deprived the Plaintiffs of funds and assets which the Coopermans diverted to their own use and
accounts, constituting a statutory theft because Nancy allegedly knowingly received and
concealed stolen property. The insurers also sought an accounting of all property purchased and
payments made with the $17.5 million acquired in Steven’s insurance fraud. The trial court
concluded the insurers had failed to prove their claims of fraudulent conveyance, statutory theft,
and conversion and, in addition, those claims and the claim for equitable relief were barred by
the applicable statute of limitations. Because these claims failed, the court found the insurers
could not sustain an action for conspiracy.
The insurers subsequently brought an appeal, claiming that the court improperly concluded that
(1) Plaintiffs failed to prove fraudulent conveyance against either of the Coopermans; (2)
Plaintiffs failed to prove claims of statutory theft and conversion against Nancy Cooperman; and
(3) that the statute of limitations barred claims of theft, conversion, and equitable relief against
Nancy Cooperman.
The valuation of the personal property transferred to Nancy, which included art, antiques, and
furnishings, was at issue in the trial, wherein the insurers’ expert opined that the personal
property had a fair market value of approximately $3.4 million, whereas the Coopermans’ expert
stated the assets had a value of $1,559,560, which should be reduced by 40 to 45 percent due to
the impact of the September 11, 2001 terrorist attacks on the markets for art and antiques.
Applying such reductions results in a one-half interest totaling $346,748.25. Thus, the trial court
found that the agreed-upon value at the time of transfer, $475,000, was not unreasonable given
Steven’s need to obtain a large sum of cash quickly and the fact that the property interests he was
selling were one-half interests in assets co-owned with Nancy. Due to the constrained timeframe
in which to sell the property, the trial court concluded Steven could not have sold the items for
full market value. Further, because Steven had substantial assets other than those transferred,
there was no evidence that the sale had been made with any intent to render him unable to meet
his obligations.
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The Court looked objectively at the totality of circumstances despite the insured being a known
defrauder. Although Connecticut law supported that a thief cannot acquire or transfer title to
stolen property and a constructive trust is imposed on property acquired with stolen property, the
Court was not persuaded by the insurers’ argument that the funds Nancy transferred to Steven
did not belong to her because the funds represented her interest in the proceeds of Steven’s
insurance fraud. The Court noted that such a claim could be proven, if at all, by proving Nancy
had stolen or converted the money used to purchase particular investments in 1999, (the
“shares”.) Thus, the claims of conversion and statutory theft were time-barred by limitations.
Despite claims that those particular investments were community property, the Coopermans’
marriage at that time was domiciled in Connecticut, which is not a community property state,
and the shares were her sole property because the interest in property is determined by the law of
the domicile when the property is acquired.
In evaluating whether the claims were time-barred, the Court noted that the latest date on which
the insurers should have known they had a civil cause of action for insurance fraud and any other
claims arising from that fraud was the date of Steven’s conviction on the criminal fraud charges
– July 20, 1999. Regardless of Nancy’s awareness of her husband’s guilt or that she may be in
possession of stolen property, the operative date for the purposes of the statute of limitations is
the date when the insurer Plaintiffs knew or should have known they had a cause of action
against Nancy to recover stolen property in her possession. The trial court found Plaintiffs’
failure to make a demand did not extend the statute of limitations for the conversion claim even
though a demand is an essential element to establish a cause of action for conversion because
such an interpretation would allow Plaintiffs to extend the statute of limitations indefinitely.
Many of the assets the Plaintiffs sought to recoup from Nancy were possessed by Steven or
Nancy or both beginning in 1993 and the fact that Nancy conducted transactions in 2001 or
continued to possess or control assets that may have been derived from the initial insurance fraud
of Steven did not extend the statute of limitations for the insurers. Because the Court concluded
that the trial court properly determined the statutory theft and conversion claims were barred by
the statute of limitations, the appellate Court did not need to determine whether Plaintiffs had
sufficiently proven those claims. Finally, the Court found that because the Plaintiffs’ equitable
claims of unjust enrichment and for an accounting and a constructive trust were based on the
same factual allegations as the conversion and theft claims, the equitable claims were timebarred as well.
Holding: The trial court properly found the insurer Plaintiffs failed to prove their claims of
fraudulent conveyance and that the claims of statutory theft, conversion, and equitable relief
were time-barred by the statute of limitations. Accordingly, the Supreme Court of Connecticut
affirmed the judgments of the trial court.
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E.
VALUATION AND APPRAISAL
Mandarin Trading Ltd. v. Wildenstein
65 A.D.3d 448, 884 N.Y.S.2d 47 (2009) aff'd, 16 N.Y.3d 173, 944 N.E.2d 1104 (2011)
Supreme Court, Appellate Division, First Department, New York
Synopsis of Art Insurance Issues: Buyer of painting brought action against provider of appraisal
letter, among others, asserting claims for fraudulent and negligent misrepresentation, breach of
contract, breach of implied covenant of good faith and fair dealing, and unjust enrichment.
Plaintiff alleged that Defendants provided an inflated appraisal figure because they had an
ownership interest in the painting; that Plaintiff was unaware of defendants’ interest in the
painting; and that Plaintiff had been unable to sell the painting for an amount even approaching
Defendant’s appraisal figure. The court noted that the appraiser was unaware of Plaintiff’s
existence or the purpose for which the appraisal was to be used, as there were several
intermediaries between the parties.
Holding: The court determined the appraisal did not provide a basis for a cause of action for
fraudulent misrepresentation because the appraisal consists of opinion, which is not actionable.
The court determined the appraisal contained no facts that were alleged to have been
misrepresented, the parties had no relationship with one another, and there was no indication of
the purpose of the appraisal. Further, Plaintiff failed to state that the appraisal was made to
induce it’s reliance, a necessary element of fraudulent misrepresentation.
The court also
determined the complaint failed to state a cause of action for negligent misrepresentation because
without knowledge of Plaintiff’s existence or the purpose of the appraisal, there could be no
privity of contract between the parties nor a relationship so close as to create privity.
II.
CONCLUSION
Fine Art insurance cases represent a sector of insurance law that is relatively
“unchartered territory.” The surveyed cases represent a sampling of legal opinions on the issues
of entrustment, excluded risks, coverage amount and policy formation, fraud and forgery. As
new law is decided, we will update this survey and when possible, include case law on additional
issues.
***
ABOUT THE AUTHORS:
Jamie K. Baker is Of Counsel to Thompson, Coe, Cousins & Irons, L.L.P., in Dallas, Texas. She
holds a bachelors of arts degree in Art History from the University of California, Santa Barbara
and is a frequent lecturer on insurance issues involving the arts.
Darrell S. Cockcroft is a Partner in the Austin, Texas office of Thompson, Coe, Cousins & Irons,
L.L.P. He holds a bachelors of arts degree in English and Government, cum laude, from the
University of Richmond, and is a volunteer attorney with Texas Accountants and Lawyers for the
Arts with a special interest in insurance issues and the arts.
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