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Mastering the art of protecting your Picassos.

The Netherlands is currently hosting a van Gogh exhibition, with an insured value of $3 billion, to mark the centenary of the Postimpressionist's death. Imagine being responsible for artwork of that value. What happens if a painting is damaged as it is being unloaded? Or vandalized? Or destroyed by fire?

Indeed, any collection of fine art, from a $3 billion exhibition to a lone painting hanging in a corporate office, creates unique challenges for curators as well as risk managers. Fine arts are vulnerable to a wide array of hazards, some of which are fire and smoke, water damage, temperature changes, humidity, earthquake, light, vermin, theft, vandalism and improper handling. The more fragile the works of art, the more susceptible they are to those dangers. Furthermore, because they are precious and rare, art objects are usually not replaceable. Therefore, it is often difficult to determine a fair market value.

What can a risk manager do to mitigate the chance of harm to an art collection? Although there is no absolute way to prevent an accident, practicing sound loss control measures and securing adequate insurance coverage can undoubtedly reduce the chance of a loss.

Making an Estimate

Risk managers can begin the process by estimating the value of an art collection through one of several methods. Replacement cost is difficult to determine because unique items cannot be replaced, and items of comparable worth, which could be used to measure replacement cost, may not be readily available. Fair market valuation, when markets exist, is the preferred method for large museums and galleries. By referring to records on a piece of art, one can determine its value without having to constantly update the figure. The so-called agreed amount valuation, which reflects consensus among the lender, borrower and insurer, is appropriate for items on loan to a museum and for singular objects of great historic or artistic value. This method prevents problems arising from inadequate lenders' records or excessive or inadequate evaluations.

Loss prevention begins with sound management practices. Carefully written and strictly enforced policies issued by the directors or trustees of museums and galleries should serve as the basis of the risk management strategy. One way to reduce the risk of loss or damage to collectibles is to keep meticulous records. Always number each item, list the current location and note prior ownership and all activity involving movement. Records should be updated on a timely basis and kept in a secure area, with duplicates stored off the premises.

It is also important to take inventory, make periodical verification inspections and establish firm procedures for reporting missing items. Written guidelines regarding transportation conditions when an item is loaned out as well as the acceptance of incoming art can ensure that collectibles will not travel under adverse circumstances such as poor weather or improper packing. In addition, movement of items within the museum should be recorded. If items are loaned, include photographs and written descriptions of their condition with the shipping papers. This documentation strengthens a case in the event that damage occurs.

On-Premise Prevention

When establishing a loss control plan, investigate on-premise hazards. Although an exhibit may not pose a fire hazard, the museum's behind-the-scenes operations may nevertheless increase the risk. These outside areas must be considered individually and as part of the whole operation. Food service operations should be separated from other areas of the building by fire-resistive construction as well as automatic closing doors. Hoods, ducts and grease removal devices are likely sources of fire if not cleaned regularly. Although it is important to consider these variables, most museum fires occur from malfunctioning electrical and heating equipment, mishandled combustibles and careless smoking habits. The cutting and welding equipment used to change exhibits presents additional hazards.

Because many museums are public buildings, the premises are often used when the facility is closed for normal business. Those who use the building for educational seminars, fund-raising activities or social functions must follow all safety and smoking policies. When possible, display artwork in a way that limits the total values exposed if a fire should occur. Artwork in storage should also be separated as to the value of individual pieces.

Less obvious hazards also require special measures. Light, especially from fluorescent lamps and sunshine, can damage articles. To avoid this situation, the ultraviolet rays from these sources should be filtered out. In addition, heat produced by lamps can be harmful. If lights inside display cases are switched on and off, the resulting change in temperature and humidity may damage objects. Installing lamps externally or ventilating cases can ensure uniform conditions. Finally, stringent housekeeping standards are essential. Traps, poisons and fumigation should be employed to combat insects and vermin that gnaw, eat or soil artifacts.

Theft by both insiders and outsiders is an obvious concern. The high value of precious art makes it a prime target for thieves, especially if the work is small and easily concealed. Small, high-value objects should, therefore, be exhibited in shatter-resistant display cases. If additional security is needed, the pieces can be wired to set off alarms.

High-security locks with tamperproof screws on doors, windows and other entry points are logical physical deterrents. Electronic alarms at the building's entrance, and security lighting both inside and outside the building, will aid in detecting burglar attempts. Assigning guards to specific areas during visiting hours, and arranging for tours of the premises when the facility is closed, also serve to detect and discourage would-be thieves. Closed-circuit television installed at entrances and shipping and receiving areas can monitor high-vulnerability areas.

Theft by in-house personnel can be reduced or eliminated by investigating the background of employees before hiring them and establishing policies regarding access to the facility by personnel during off-hours. Admittance to storage areas should be monitored carefully, and a staff member or security guard should be present if anyone is granted access to collections.

Storing art objects represents another hazardous situation. Due to the sensitivity of artwork to humidity and temperature fluctuations, hygrothermographs should be used in storerooms and throughout the building to record changing conditions. Also, artwork should not be stored in the same area as combustible packaging material such as polyurethane wrapping, pellets and wood crates. Off-site storage of this material is preferable; if that is too expensive, store it in a separate, protected on-site area.

Changing exhibits, renovating or remodeling represent another set of risks. Special lighting and temporary circuits are frequently used when exhibits change. Hiring licensed electricians to perform these tasks decreases the chance of electrical fires as a result of poor workmanship. When possible, existing fire barriers, such as fire doors and walls, should remain intact to separate work areas from exhibition rooms during renovation or remodeling.

Off-Premise Consideration

Art objects may end up in the custody of others for a number of reasons, including exhibition, consignment for sale, appraisal and authentication, framing, cleaning, repair or storage. Legally, the person with custody of the article (the bailee) is liable for loss or damage, but that liability is limited. A contract, loan agreement or deposit receipt should define the extent of the bailee's responsibility when items are in his or her possession. Discussions with management and review of standardized forms should eliminate confusion about responsibility for loaned items.

Review the management and history of the temporary location. Traveling exhibits, if they are ethnically or politically sensitive, can be targets of vandalism. Investigate the sponsoring organization, the amount of publicity for the exhibit, the travel time and extent of packing and unpacking.

When objects are packed for transport it is critical to use the appropriate containers, which are usually custom-built. Everything should be properly cushioned, padded, separated and insulated from vibration. Both packing and unpacking are vulnerable times and should be supervised by knowledgeable personnel. For air shipments, take into consideration changes in air pressure, temperature and humidity. In addition, ship valuable collections in more than one vehicle whenever possible.

Private Collections

Museums and galleries are not the only repositories of valuable art. Investment in private, institutional and corporate collections is substantial and increasing. Indeed, it is common to find fine artwork displayed in private offices as well as corporation corridors.

While corporate and private collections rarely have the same degree of public exposure as those in a museum, such art, especially if it has been owned for a while, tends to be considered part of the furnishings; often no special protective measures are taken. However, the same precautions used in museums and galleries must be taken to protect art in corporate buildings. Documentation of ownership, provenance, condition and updated appraisals must be kept for each piece of art.

Corporate and private art collections often include artifacts of commercial or historic value that are displayed on special occasions or loaned for exhibitions. These pieces include early corporate products, founder's portraits, office machinery, corporate account books, diaries and trademarks. They are usually insured under a valuable papers and records policy or sometimes under fine arts insurance forms. As irreplaceable items, it is difficult to establish values for these properties. In general, the preservation and safekeeping of these artifacts should be the prime risk management objective; insurance considerations should be secondary

Risk management and insurance needs are based on specific exposures. Many corporate, private and museum collections are fairly static exposures-they remain on display or in storage except when they are loaned out for special exhibits. Other collectors lend out art frequently and many museums both lend and borrow regularly. Naturally, risk and insurance management techniques will be influenced by the extent of such activity.

Indeed, attitudes about insurance for artwork vary considerably. Corporate and private collectors generally insure each work they own for a fixed value. Corporations often insure their collections for current appraised values because the objects are considered corporate assets. On the other hand, most museums cannot afford to insure all their permanent collections. For example, the 12 priceless artworks, including paintings by Rembrandt, Degas and Manet, recently stolen from the Isabella Stewart Gardner Museum in Boston were insured against damage, but not against theft. Part of the reason for this was the rapidly rising cost of art and the increase in art robberies in recent years, which made theft insurance more expensive than the museum's entire operating budget.

Insurance Policies

Many museums typically have all risk policies for theft, vandalism and fire that cover their collections for a blanket amount. These policies usually cover a collection on the premises, in transit and in any other location in the United States. Loaned or borrowed works sent abroad generally require a specific clause; territorial limits are negotiable with underwriters. Frequently the policy will automatically cover a new acquisition. However, this extension is generally limited to 10 percent or less of the existing values insured.

It is true that "all risk" does not mean "all loss." Typically excluded from all risk policies are losses due to wear and tear, gradual deterioration or damage by insects or rodents; extremes in temperature or humidity; repairing, restoration or retouching; inventory shortage; war and governmental seizure; and nuclear risks. Exclusions for flood, earthquake, unexplained disappearance and breakage may require negotiation with the underwriter. The intent of the breakage exclusion is to eliminate claims that result from mishandling. Sometimes this coverage can be purchased; however, underwriters look to limit the amount payable to either a flat sum or the cost of repair and restoration, assuming that the article is in fact repairable.

Underwriters also vary in their willingness to insure loss caused by employee dishonesty. If the proposed insurance form excludes this peril, obtain separate coverage. On the other hand, coverage for property in transit is usually broad. However, transit conditions that are obviously not suitable for fragile or sensitive articles tend to be excluded. These include shipments by mail, property shipped under an "on deck" bill of lading and theft from an unattended vehicle. Obviously, these exposures should be assessed and evaluated for each instance. In most cases a solid risk management approach is more appropriate than an insurance one.

Most loaned property is insured on a so-called wall-to-wall basis, which covers the objects from the time of their removal from the lender's possession to their return. In a loan arrangement the key document is the loan agreement. Signed by both lender and borrower, this document should clearly describe the object or objects loaned and their condition, the value declared by the lender, the period of the loan and the locations of the exhibition. The agreement should also stipulate who is responsible for packing and transport, insurance and any repairs or restoration. Risk managers should be certain that the insurance coverage follows the agreement, making references to it whenever possible.

The key to a sound risk management program for any fine arts collection is to consider all the situations that can occur. If loss prevention measures, such as fire safety and security, are combined with the factors concerning fine arts risks, caring for precious objects becomes a manageable and pleasurable task.

James E. Mooney, CPCU, is president of Inland Marine Underwriters Association.
COPYRIGHT 1990 Risk Management Society Publishing, Inc.
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1990 Gale, Cengage Learning. All rights reserved.

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Title Annotation:art insurance
Author:Mooney, James E.
Publication:Risk Management
Date:Jun 1, 1990
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