If you’re a news junkie like I am, you have probably heard about the FBI recovering a pair of ruby red slippers worn by Judy Garland in the filming of The Wizard of Oz. By way of background, the shoes were stolen from The Judy Garland Museum in Grand Rapids, Minnesota thirteen years ago. At the time of the theft, August 28, 2005, the shoes were owned by Michael Shaw, a collector out of Hollywood. Mr. Shaw purchased the shoes in 1970 for a mere $2,000. Following the loss, he was compensated $800,000 by the insurance company, which is now deemed to be their legal owner. The policy at that time valued the shoes at $1,000,000.00.

Essex Insurance Company, claiming the museum voided the policy by not disclosing changes to its security measures, sued both Shaw and the Museum before paying the $1,000,000 policy limits. The case was eventually settled for the aforementioned $800,000. The case is Essex Insurance Company v. Judy Garland Children’s Museum, Inc. et al, Case Number 0:05-cv-02815, in the U.S. District Court of Minnesota. From a Motion for Summary Judgment filed by Defendants in this case, I learned some of the underlying facts regarding the policy and settlement of this matter.

Mr. Shaw would loan the shoes to the museum periodically and had loaned the shoes the summer previous to the theft, 2004. The museum, pursuant to its contract with Mr. Shaw, obtained property loss coverage insuring the slippers against theft in the amount of $1,000,000 through Essex Insurance Company for the 2004 showing, and again obtained coverage through Essex for June 23, 2005, through September 5, 2005. The Museum was the named insured/policyholder.

Essex failed to issue the 2005 policy until after the theft was reported to Essex. Essex then asserted there were substantial changes made to the policy between 2004 and 2005 as the basis for its refusal to tender the full indemnity limit and recovery of attorney fees. (As regular readers of this blog know: read your policy, even if you’ve been insured with the same company for years!).

Essex first sought a declaratory action asserting complete denial of coverage on the basis the museum failed to comply with the “protective safeguard warranty” of the policy. This was later found not to be the case as revealed by Essex’ own investigation. Based on the exposure of Essex as to what it knew to be factual fallacies underlying its denial of coverage, Essex negotiated a confidential settlement agreement with one of the defendants, Shaw, the owner of the shoes.

So how does this lead to the insurance company now owning the shoes? Apparently, the Markel Corp. (a holding company for insurance, reinsurance, and investment operations) bought the rights to the slippers from Shaw for the $800,000. It was contracted to either in the settlement agreement or some other way. I did hear on the news that they would offer Mr. Shaw the opportunity to buy back the shoes.