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TechTalk: Collections Insurance Top Ten Questions to Make Sure Your Museum is Properly Covered

Category: On-Demand Programs: Collections Stewardship

Collections and loans are vital to every museum. But do you know how they are insured? How would the museum’s insurance policy respond in the event of a fire or pipe break? What if the museum does not have a full appraisal of  its collections? In this session, learn what questions to ask in order to understand how your museum’s policy would cover losses to your collections and temporary loans. The presentation will review collection insurance essentials in ten easy questions. The Top Ten Questions will help you easily spot possible collection insurance shortfalls both for your institution and when loaning your collections out to other museums. Once addressed, you will be able to rest assured knowing that your museum’s collections are properly insured.

Presenters:

Adrienne Reid, Vice President, Huntington T. Block Insurance Agency, Inc.

Adrienne Reid: My name is Adrienne Reid. I’m vice president at Huntington T. Block Insurance. I’ve been with Huntington T. Block for 16 years. Our company is 65 years old and is the largest and longest-standing fine art insurance broker in the world. We are actually a accredited and exclusive partner of the American Alliance of Museums. We’re so thrilled to be here and thank you for joining us. Let’s get started.

One of the biggest questions that I get from insureds and museum directors in particular is, “How do I know if our collections insurance is adequate? How do I know if the policy that I have is appropriate for our coverage for the art collection?” And usually an insurance policy is about 60 to 100 pages. It’s pretty dense material, and people don’t necessarily want to take the time nor have the knowledge set to be able to really digest it and understand the nuances of the coverage.

So, that’s why we’re here today. We’re going to give you some quick and easy questions to just break down some of the really important issues and things that you need to look at at your collection policy to see if your museum is properly covered.

Collections insurance is vital to every institution. You have to have an insurance policy that covers your collections and temporary loans. When it comes to temporary loans, it’s vital. You have property of others in your care, custody, and control; and you need to provide insurance coverage for that.

What happens if there’s a fire or a pipe break? Will your collection policy respond? How will it be insured? Does the museum have to have a full appraisal? How are these priceless artifacts insured? Those are some of the big questions that we need to review and think about in our mind when we review these top 10 questions.

So, number one, very critical, number one. Is the collection blanket? What does that mean? Blanket means coverage that extends to all artwork in the care, custody, and control of the museum. That includes permanent collection and temporary loans and also jointly owned artworks and artworks waiting for donation.

There’s no schedule on the policy. Everything is just blanketly covered under the collection policy if there’s a financial interest of the insured, meaning that either you own it or it’s in your care, custody, or control. And that means that they are covered completely up to the policy limit. There’s no sub-limits or lower limits of coverage depending on what the object is. It’s just all covered under the blanket. So, it’s very, very broad. And this is something that is standard in the museum community. So, it’s absolutely vital for you to have a blanket coverage for your museum collection coverage.

Number two, what is considered fine art? Fine art can be many, many, many different things. And in particular, recently we’ve seen a lot of questions come up about non-fungible tokens, NFTs. These are digital artworks. They don’t actually exist, and I can’t hold it in our hands. But they are actually artworks, and they would be covered under a fine art policy.

So, when you look at your insurance policy, there should be a very broad definition of what’s considered fine art. Many things that you would normally be accustomed to know about such as paintings, water colors, antiques, sculptures, but also memorabilia, archeological objects, rare and historic books, and even the equipment that’s used in the association with the installation of the artwork is considered artwork and covered under the policy.

If your policy doesn’t have the clause that says at the very end, “And other bonafide works of art of rarity, historic value, and artistic merit,” then it may not cover everything that’s in your collection.

Number three, what is the policy deductible? A deductible, as you might remember or know from your homeowner’s insurance policy or your car insurance, is the amount that you pay out of pocket if there’s a loss. So, a normal museum deductible when it comes to collection coverage is about $1,000.

Now, every institution can have their different risk tolerance level of maybe they have a higher deductible because they want to save on premium, or maybe they prefer something lower. That’s completely up to the institution. But just in general, it should be about $1,000, and that deductible should only apply to your permanent collection on premises. In other words, that deductible should not apply to temporary loans or artwork that’s in transit.

Why do we do that? And the reason is because when you have a claim that involves a third party or a lender, in other words, they’re already very upset that their artwork has been damaged while it’s in your control. The last thing we want to have happen is that they have to then recoup or come after the museum for a deductible.

So, at Huntington Block many, many years ago when Mr. Huntington Block wrote the fine art insurance policy for museums, he made it clear that a deductible should not apply to property of others. And that’s a good faith measure. What it does is it allows for the museum to be completely and totally covered when there’s a loss to a lender’s artwork. Now, you might have a separate deductible if you’re in a special catastrophic area such as California or Florida involving earthquake, fire, or wind.

Number four, what are the exclusions? So, the coverage should be what we call “all risk.” That means that everything is covered except for what’s excluded. That is a standard type of insurance coverage that every museum should have on their collections insurance policy. What that means is that the only thing that you should be paying attention to when you’re trying to figure out what’s covered or not covered are the exclusions, and those exclusions should be extremely minimal.

In our policy and in many, many museum policies with other companies, there should be only three standard exclusions. The first is a little different. So, I’m going to skip that, and we’ll come back to it. The second is war, which is very straightforward. That’s not covered. Nuclear, also very straightforward, not covered.

Now, let’s circle back to that first one, wear and tear. What does that mean? These are things that happen to artwork over the course of a period of time that just, not necessarily damage caused by a specific transit trip, but over the course of the life of the artwork, it gradually deteriorates. And that’s what gradual deterioration and wear and tear mean. There’s no definitive or point in time that you can say, “This changed.” It just happens over the course of time because of the physicality of the object.

Inherent vice is something within the object that causes it to self destruct. Sometimes I like to use the example of an ice sculpture. Over the course of time, if in improper conditions, it will melt; and that’s inherent vice. A more readily available example would be if an artist used a type of glue that perhaps over the course of time just started deteriorating causing the piece to fall apart. That would be inherent vice.

Now, if something happened to the piece which caused the glue to break or the object to disengage from its position, that would be covered, because that is an accidental damage. Inherent vice is something that just happens to the object with no conceivable or known event.

And finally, process is excluded. Now, this means anything that you do to the piece for repairing, retouching, or restoration that is actually an intentional work that you do to it. If the conservator drops their coffee and spills it on the artwork, that’s covered, completely covered.

But if they use the wrong chemical and intentionally they are using a chemical and then it goes wrong, that is not covered. That’s something that we actually do provide a limited amount of coverage under our policy for. But in general, that’s not something that’s covered.

So, now that you know all of the exclusions, you can understand what the policy coverage is. Fire is covered. Water is covered, handling damage, transit damage, anything your mind can conceive of. And believe me, with over 800 museums that we’ve insured for over 65 years, we have seen everything. So, all of those things are covered under an all-risk policy, unless they are specifically excluded.

Now, terrorism coverage is something that’s optional, and it’s usually dependent on whether or not the lenders require it and their location. But the coverage in general should be extremely broad. So, when you’re looking at your policy, that 60-page, 100-page document, and you’re trying to figure out what’s covered and how does the policy respond, start first by finding the words “all risk,” and then go to the section marked “exclusions.” Read those exclusions, and then you’ll have a quick and easy understanding of what the policy coverage is.

So, let’s jump into number five. Number five, how does the policy value artwork? What a question. Art is priceless, right? These artifacts that have no value, they are intrinsic to our humanity, and we’re keeping for posterity. All of these things have value at the end of the day. There’s a market for it, and the policy has a value for it.

So, the artwork policy will divide the valuation between two different methods. The first has to do with the permanent collection. For permanent collection, the valuation is current market value. Like I said, there’s a market for everything, even dinosaur bones. So, if there’s a loss, the adjuster will look to what the current market value is, and they most readily do that by getting a third-party appraisal.

If it’s a policy that covers property of others, then the valuation for property of others is agreed value. And like I said on question number one, it’s a blanket… It should be covering property of others. And that agreed value is based off of the loan agreement, and that’s why loan agreements are so, so critical. You have to have that documentation between you and the lender. And specifically, it’s really, really important that you have a value there.

There’s a couple of questions that commonly come up when it comes to loan agreements and values. The first one is usually, “What if the lender doesn’t want to put a value, and they just leave that section blank?” Well, the policy in our policy coverage will actually revert to current market value, which is fine. The artwork gets covered.

But the problem becomes when the claim happens. If there’s no agreed value, then the adjuster has to go get an appraisal, and sometimes lenders will disagree with that appraisal. Then you come upon a situation where they may have a conflict with what the insurance company is proposing, and nobody likes to introduce conflict, especially when you’ve already had a situation where the lender’s distressed by their artwork and object being damaged.

So, to allow that peace of mind and to provide a more seamless process when there is a claim, it is critical to have an agreed value. Then everybody knows exactly what the policy of coverage will be, and there is no question about the value. So, the lender can be assured of what they will be receiving.

Now, another question that generally comes up is, “What if they put a value on the loan agreement that is crazy? It’s outlandish. It’s completely out of the picture of what current market value is.” And the short answer is, the policy will cover it up to the policy limits if that’s what they put on the form, because the policy is following that contractual obligation that the museum has with the lenders.

Now, it becomes a problem if it’s an overexaggerated amount. Then you’ll end up having an even more terrible loss on your loss record which will adversely affect the museum’s loss ratio and premiums moving forward for many years.

So, the way to avoid that is… Of course, museums are not appraisers. So we wouldn’t expect you to be able to say one way or another what a value is. But if you do see a value that looks out of line with what else is coming in that exhibition, then you can certainly push back on the lender and say, “Thank you for providing your signed loan agreement. That’s great. Where did this value come from? Did you have an appraisal? Can you provide us with a copy.” And if necessary, you might need to pull in the curator or the director.

And just make sure that that diplomatic conversation, which can be a challenge, is had with that lender, because the lender, in all likelihood, isn’t wanting to put the museum in an adverse position. They’re just interested in getting covered when there is a loss.

So, it’s helpful as we talk about permanent collection, it’s helpful to have updated valuations on your top highest-valued objects to make sure that you’re properly insured. We don’t expect that a museum have a complete appraisal of their entire inventory. That would be really, really expensive. But we do expect you to have a good grasp on at least the top 10 highest-valued objects in your collections. Which, by the way, if you go to Christie’s or Sotheby’s, generally for museums they will provide you with a free appraisal. It may take a little bit of time, but it’ll be free.

So, in addition to doing that, every time an object goes out of your museum and you’re signing a loan agreement, an outgoing loan agreement, check the value. Make sure that that value is right.

So, now let’s move on to number six. Does your policy cover wall-to-wall? Wall-to-wall is an industry to term that means from the moment the artwork is removed from its normal repository until it’s returned. It’s in the due course of transit until it comes back to the lender.

This is often called “nail-to-nail, wall-to-wall, condition report-to-condition report,” whatever. As long as the object is covered from the moment it’s removed until it’s returned, that is what wall-to-wall means, and your policy should have that language in it. Ideally, you should have condition reports on the moment that it is removed from the wall, placed into packaging or the crate, and then on the reverse, when it’s returned to the lender.

Sometimes that doesn’t always happen, but a good rule of thumb, especially in these days when it’s very, very simple to take a picture… Everybody has a cell phone. Everyone has a camera. You can take a picture. Ask the lender to take a picture of the artwork front and back before they pack it or before it’s packed by the art handlers. Similarly, when they receive it back, they should take a picture of it front and back when they’ve received it to confirm that they’ve received it in good condition, and then that cuts off your insurance responsibility.

If there’s a situation where you’re not responsible for packing it, then you should not be covering it in transit. You should not be covering it wall-to-wall. What you should be doing is saying, “We’ll cover it from the moment it arrives at our museum and we’ve unpacked it and condition reported it,” because that incoming transit may be in a way that is not appropriate, and you don’t want to be on the hook for bad packing or bad transit methods that are completely outside of your control.

What you need to do is transfer that insurance responsibility to the party that has actually packed it and had it in their care, custody, or control, so just making sure that you’re transferring that insurance responsibility where appropriate. And that would be when you don’t have control over the object.

So let’s move on to number seven. How are partial losses covered? Unfortunately, most damages to artworks are partial losses. I guess it is fortunate because we’re not losing the objects, and most of the time, people are very interested in restoring the object versus calling it a total loss and it be gone forever.

The purpose of most museums is to retain objects for the benefit of cultural patrimony and posterity for generations to come, and a part of that means when something happens to an object, you do your best to restore it. Ongoing efforts are always being done by museums to make sure that objects continually be in the most ideal environment and situation to make it last as long as possible.

So, let’s get back to insurance. How does the policy respond if there’s a claim that’s just a damage? Your policy should cover not only the conservation costs, but also the loss in value. This means that it will cover the change in value after it’s been restored and the difference in value between that and what the value is after the restoration.

So, let’s give an example. If you have a photograph that’s damaged, let’s say it’s a handling damage. Let’s say that the staff accidentally bumped into it and caused a crease in the object, in the photograph. That’s something that’s a partial loss. It can easily be fixed.

So, it goes to conservator. The policy, of course, will cover the conservation costs. It comes back from the conservator. They’ve done the best that they can to relax the fibers of the photograph in order to get it back to its normal position so that you cannot see the crease.

But yet, even with all of their meticulous and actually amazing, I call it “magical work,” there’s still a trace, a hint that it’s been damaged. So, the policy will cover what the value was prior to the loss, let’s say it was a $10,000 photograph, and the difference between that and what it’s now valued after the loss. So, let’s say, because of this crease, even though it’s been fixed and restored, is now valued at $8,000. So, the policy would pay that $2,000 loss in value.

Most of the time, museums on their permanent collection are not very interested in that loss in value because they don’t have an interest in selling their objects. They don’t have some sort of economic incentive out of the object. They’re keeping it for posterity, like we talked about.

This more readily becomes an issue and a question when it comes to lenders, because most of the time, these are private collectors who have the object that they own because they love it, of course, but also because it’s a financial asset for them and they want to retain that value. So, getting that loss in value is a way to recoup what they’ve lost.

If the object is a part of a pair or a set, then the value of the entire set is taken into consideration when it comes to settling the claim. So, let’s take the example of a… Let’s just say, I have a saucer with my cup of coffee. If the saucer is damaged and the set is together, then the entire piece is considered damaged, and the policy will pay according to the value of the entire set.

That may be a situation where you would have to then surrender the cup, because it’s a part of the set, if the sausage damaged. That’s your choice, you can make that decision. But the point is, is that the entire object is considered a part of the pair in the set.

If it’s a total loss, then the object has to be surrendered or destroyed. That’s a really difficult thing, and like I said, ends up not being the case unless it’s a catastrophic situation like a fire or an awful water damage or something like that. The important thing is just to make sure when you’re looking at your policy, in particular when it comes to partial losses, that not only is the policy going to cover your restoration conservation costs, which, by the way, can take a great deal of time and are the leading cause and reason why claims take so long, but also covering that loss in value.

So, let’s move on to number eight. When was the last time that your collections insurance was put out to bid? In all likelihood, if you have an amazing broker, then you probably haven’t put it out to bid in a very long time, which is great. If they’re doing their job and they have clearly conveyed to you the understanding of the coverage, their services is on point, that they’ve provided competitive premiums year over year then there’s no need to put it out to bid.

But if there’s any question that perhaps you’re not getting the very most competitive deal, then you need to talk to your broker and ask them to put it out to bid to insurance companies. As a broker, they should have a myriad of options for you, and they will go out to the insurance marketplace, specifically those fine art underwriters that they know are trusted and respected in the fine art insurance community, and get several quotes for you. Then you can see if it’s the most competitive pricing for your museum.

If you’re not happy with your broker, if you feel like that they don’t understand the nuances of fine art insurance, then that is the time when you could perhaps do what’s called a broker selection. And this basically means that you’re perhaps asking other brokers to put forward what their services are and how they can help the museum, and then from there, select the broker that you would like to move forward with going off of their references, what their services that they provide, what their reputation has been, what their expertise is, all of these things helping to make that decision of what broker you want to represent the museum. Then when you’ve selected that broker, they would again go out to the insurance companies and get the best price and the best deal for the museum.

But this shouldn’t happen very often. Hopefully, you have a great fine art insurance broker who really understands the intricacies of fine art insurance and these previous questions that we’ve talked about. And if not, give me a call.

Let’s move on to number nine. When loaning out, what kind of insurance does the borrower have? So, again, we talked about this with outgoing loans. You should know if the borrowing institution has a solid fine art insurance policy, that it’s covering wall-to-wall, and that it has that broad, fine art insurance coverage.

And a part of that is making sure that you receive a certificate of insurance from them prior to you letting the art go. It won’t really give you a whole lot of details. It won’t list the exclusions. The certificate should list the underwriter or the insurance company, the agreed value, and the loan period.

And if you have a good fine art insurance broker, they can help you determine or decipher whether or not that insurance company is a reputable, fine art insurer and somebody that you feel like is equipped and would have that breadth of coverage that you would expect for a museum collection policy. Beyond that, it’s really up to the loan agreement. That’s your critical, most important document to verify insurance responsibility. You should also request to be listed as a loss payee. That means that you receive the payment directly from the insurance company if there’s a loss.

So, again, when you’re loaning out, you have to have a signed loan agreement before the artwork leaves. You should do a conditional report, like I talked about, when you’re prior to packing the object. And you should have a certificate of insurance in hand before the object leaves the museum.

So, number 10, what happens when you have questions about your coverage? This goes back to your broker and how important it is to have a great relationship with your insurance broker. They should have a strong understanding of how museum collections insurance works, and that really means that they can explain to you the nuances of the coverage and answer any sort of strange, weird questions that come up from lenders, which often happen.

They should be able to advise you on standard insurance arrangements for loans, incoming and outgoing, and then they should also provide you with some loss prevention recommendations, and in particular, how to avoid losses in your area at your museum for your specific situation.

So, all of these things point to your broker, your critical ally. This is the person that should be your confidant and your advocate, and you should make use of their services so that you can have a clear piece of mind that the museum has the right insurance for its museum collections.

So, in conclusion, your fine art insurance should be extremely broad, and you should have very specialized knowledge from your broker. Fine art insurance is not like car insurance. It’s not like building insurance. It’s extremely specialized. And as you can see from the 10 questions that we talked about, even though a museum policy can be very daunting as a document, just hit these high points, and you’ll know right away if it’s appropriate coverage.

It should be very unique to the museum that you actually have and the fine art collections that are in your care, custody, or control. And claims should be handled by specialized adjusters. These are people that only do fine art insurance claims. But talk to your broker if you have any questions or concerns that come up about your policy coverage to make sure that your museum is properly insured.

So I’d like to say, thank you so much for joining us today. Thank you for your time. We really appreciate this opportunity to hopefully give you some really important key insights to make sure that your museum is properly covered. Our information is listed below. If you have any questions or need anything, please contact us at huntingtontblock.com or htbinsuresart.com. Thanks so much. Take care and have a great day.

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