Recently, my fiancé and I watched the Season 3 premier of Divorce on HBO. It’s sort of a guilty pleasure. I admit, at first, I was hesitant when my fiancé recommended I watch. But, one episode in and I was hooked. It’s funny, witty, snarky, and overall relatable for many people. If you haven’t watched this show yet, I recommend it. Albeit, HBO has now announced this is the final season of the show so try and not get too attached.

Spoiler alert: In the season premier we learn that one of the main characters, Francis (played by Sarah Jessica Parker) suffers an electrical fire and subsequent loss to her art studio. Clearly, this is a covered loss. Francis is inside the charred-out studio speaking with the insurance adjuster. The walls are charred around what used to be paintings and pictures. The place is a disaster. Feeling down on her luck from the fire, Francis asks the adjuster how much money she may expect to see? The adjuster, playing coy says she can get into trouble for telling her, but she can expect probably anywhere from two and three thousand dollars. Francis is shocked, how could that be? She quickly states she made five times that amount just at her last show. The insurance adjuster apologizes and says, well in my line of work, those paintings have, “no proven value.” Francis retorts that the art work on the walls were all marked with little stickers (indicating they were sold). The insurance adjuster remarks that in her line of work, people can use this as an opportunity to make a big change in their life. Francis is distraught, and the show moves on.

At this juncture, my fiancé pauses the show and asks, “this can’t be really what happens, right?” I, of course, answer all too quickly, “if it didn’t, I wouldn’t have a job…” and we continued to watch the show.

This made me think, sometimes life mimics art and other times art mimics life. Here, art mimics life. Insurance losses are all around us, from a small mom and pop art dealer, to major commercial buildings, we all know that losses happen. But when they do, many are amazed to discover that their claims are being delayed, underpaid and denied. The sad reality is that these are the real-life tactics insurance companies take on consumers. Even ones who have just lost everything, including their livelihood. Now in the example above, clearly the electrical fire was a covered loss. The insurance adjuster remark that the paintings had “no proven value,” is a farce. Francis had sold the paintings, she had sold many before at previous shows and we can presume had records and invoices. But, even so, real life would have played out the same. The art dealer would have been underpaid by the insurance company, if they were even paid at all.

So, how does one prove value in art items? Well “proven value” may be identified by showing invoices or receipts from the sale of the art or its purchase price. In the show, Francis claims to have sold each artwork. The hope is that she would have had each purchaser fill out an invoice with at least their information and the agreed upon price. If she did not, the further hope is that she has receipt for either what she paid the artist for the work or if on assignment, how much previous works have sold for. It is a very difficult task and one most insurance company adjusters are not well versed in. It is always a good idea to work with a fine arts appraiser to establish values of works lost.

But the issue also arises as to who bears the risk of the loss? If the paintings are purchased but not delivered, does the art dealer bear the risk? Does the purchaser or the artist share in the risk? Well case law on this issue is scarce. An Illinois court decision says that works of fine art received by art dealers are held in trust for the owners.1 The art dealer is trustee for the benefit of the artist until the work of fine art is sold to a bona fide purchaser or is returned to the artist. The proceeds of the sale of a work of fine art are trust property and the art dealer is trustee for the benefit of the artist until the amount due the artist from the sale is paid in full. The Second Circuit Court of Appeals held that an insurable interest exists in a transferred work of art and the art holder has a claim under the seller’s policy if a loss arises.2 The Southern District of New York held that fine art can be valued at the agreed upon consignment figure and an insurable interest for the artist exists with the dealer.3

The overall theme seems to be that art on consignment can be insured by the dealer for the benefit of the artist and the dealer. Some jurisdictions allow the purchaser to recover under the dealer’s policy as well when the art is purchased and not delivered. While other jurisdictions say that the insurable interest passed to the buyer upon sale.

Recently, Paul LaSalle (of our Red Bank, New Jersey office) and I resolved an insurance broker malpractice action which dealt with a fine arts limitation. Our client, an art dealer, had an insurance policy that covered the gallery. However, buried deep within the policy that their broker procured was a limitation. This limitation was for fine arts and it capped all fine art losses at a very low figure. Now, why would a fine art dealer have a fine art limitation in their policy? Great question and one we wanted to know as well. Suffice it to say, the broker procured a bad policy and when our art dealer lost everything in a fire, they could only get back up to the fine arts limitation. This left them in a bad position, not unlike Francis in the show.

However, unlike Francis, our client made the right move and sought legal representation. After coming to Merlin Law Group, we were able to secure the client a quick and just settlement which helped them get back on their feet and the gallery doors re-opened.

Sometimes life mimics art, and this time art mimicked life.
1 Davis v. Rowe, No. 91 C 2254, 1993 WL 34867 (N.D. Ill. Feb. 10, 1993).
2 Zurich Am. Ins. Co. v. Felipe Grimberg Fine Art, 324 F. App’x 117 (2d Cir. 2009).
3 Silverstein v. Xl Specialty Ins. Co., No. 15-CV-6818 (VEC), 2016 WL 3963129 (S.D.N.Y. July 21, 2016).