This article was originally published in Insurance Day on July 8, 2018.
By Mary Buschman, Aris Title Insurance
We frequently read about a newly discovered artwork, a previously unknown Shakespeare folio edition turning up in a stately home, or maybe a dusty trunk forgotten in someone’s suburban attic that holds valuable treasures.
The first task is typically to determine the object’s authenticity, but getting to grips with the ownership history – whether legal or illegal – can be a much greater challenge.
Research into the object’s provenance or history of its whereabouts is a good start, but risk transfer in the form of art title insurance is used increasingly as the ultimate reassurance of clear title.
This kind of coverage was purchased when a “new” 17th century manuscript turned up five years ago. A rare book dealer was selling the manuscript to a reputable US institution to add to its public collection. The museum authenticated the manuscript as genuine, but one question remained: where had the pages been during the more than 400 years since the words flowed from the writer’s own pen? For the dealer, everything was hanging in the balance: not just the considerable purchase price, but also his reputation.
To remove the risk, the dealer bought an art title insurance policy, with the museum named as the insured. The insurance helped the transaction along by providing coverage to the museum not just for the legal defence of any subsequent claims to the work, but also for its value.
Should anyone appear in the future to claim the literary relic as their own, the insurers would step up, and if the case went to court, would provide full defence coverage. If the claimant won, the insurance company would provide full indemnity for the value of the object’s limit of liability.
Art title insurance not only supports the defence against a claim, but also makes good the loss (at a stated amount or the market value, depending on the policy) when an insured object’s title is shown to be defective and revoked from the insured.
Concerns over the missing hundreds of years would be satisfied with all parties safeguarded and the coverage enduring until the document is sold again.
Title insurance for fine art and collectibles is not widely sold, but its popularity is increasing as the nature of the art market changes and as people get wealthier. The art world has become more mainstream and significantly more complex. Private collectors, auction houses, dealers, corporations, and institutions are more concerned than ever about the risk of buying a work the seller doesn’t own. Vendors may be asked to make express warranties or representations about title, liens and encumbrances against works, and gaps in provenance. Art title insurance means they can do this.
Art can be transacted in many ways both legally and illegally, for example, in a divorce case in which assets are divided among a couple, inheritance or in the corporate world during a merger or acquisition. Additionally, stolen artwork can fall into the hands of a good faith buyer. The alarm bells ring when gaps in provenance or lack of transaction documentation suggest a questionable transfer of ownership in the past, meaning future claimants could come forward and declare a stronger claim to title than the current sellers, intermediaries, or buyers. The fact that a painting by an Old Master has hung in someone’s home for their entire lifetime does not mean they have the right to sell it: great-grandfather may have bequeathed it to someone else, whose grandchildren now want to claim the painting.
Facts of ownership matter in art title risk, but so does jurisdiction if the case ends up in court. In the US, a thief cannot pass clear title, whereas in Switzerland the laws are more favourable to the person who possesses the object.
There are many legal considerations: for example, was the art sold under duress during the second world war? Is it subject to cultural property claims by another country that it was “looted” and taken home from tombs, monuments, or elsewhere?
No one will insure title when art is obviously stolen (for example, when it appears on the Art Loss Register), but in most cases the risk of defective title leading to future claims can be transferred to the insurance market. What’s more, such insurance can protect the identity of buyers and sellers who wish to remain anonymous.
Mary Buschman is president of Aris Title Insurance Corporation, which is part of the Argo Group