Commercial Property Insurance for Fine Arts

Vase and three-legged incense burner, Ming dynasty. China, 16th century
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Many businesses decorate their workplace with paintings, statues, Persian rugs, tapestries, and other artwork. In commercial insurance, these items are called fine arts. To protect your business against the loss of valuable items, you'll need to purchase fine arts coverage.

Property Policy Limitations

Artwork, collectibles, and similar items qualify as covered property under a standard commercial property policy.

However, many policies contain provisions that limit coverage for such property.

Valuation

One major problem is valuation. In many policies, replacement cost coverage does not apply to works of art, antiques or rare articles. Even if you have elected to insure your business personal property on a replacement cost basis, any loss involving works of art will be determined based on the actual cash value of the damaged item. "Works of art" include etchings, pictures, statuary, marbles, bronzes, porcelains and bric-a-brac. These items can be expensive to repair and difficult to replace. Some may be unique and difficult for your insurer to value accurately. For these reasons, fine arts should not be insured on an actual cash value basis.

Exclusions

Many commercial property policies exclude perils to which paintings and other fine arts may be vulnerable. Here are examples:

  • Changes or extremes in temperature
  • Dampness or dryness of the atmosphere
  • Marring or scratching
  • Nesting or infestation of insects, birds or rodents
  • Fungus
  • Continuous seepage of water or moisture over 14 days or more
  • Water leakage from plumbing or air conditioning caused by freezing

The first five exclusions listed above are often subject to an exception for ensuing loss by a "specified cause of loss" (named peril).

That is, if temperature changes, humidity etc. result in a named peril, the damage caused by the named peril is covered. For example, birds nesting near a light fixture trigger a fire in your company's building.The fire damages a painting that hangs on your office wall. Nesting birds is an excluded peril, but fire is a "specified cause of loss." Thus, the damage to your painting should be covered.

Breakage Limitation

Many policies contain a Limitations section that excludes coverage for breakage of fragile items like statuary, marbles, and chinaware. Breakage of such property is excluded unless it results from a "specified cause of loss."

For example, vandals break into your office one night and throw a valuable statue onto a concrete floor. The statue breaks. Because the breakage resulted from a covered peril (vandalism), the damage to the statue should be covered. However, the damage would not be covered if the statute broke because an employee accidentally knocked it off a shelf on which it was displayed.

Fine Arts Coverage

For the reasons cited above, you should not rely on your commercial property policy to cover valuable artwork. To protect your business against losses, you'll need to purchase fine arts insurance.

This coverage is often added to a commercial property policy by an endorsement. It may also be written by itself as a separate policy. A fine arts form or endorsement is often referred to as a fine arts floater.

The following discussion focuses on the fine arts coverage that is typically purchased by small businesses. This coverage is designed for companies that own valuable artwork but are not in the fine arts business. Museums, art dealers, exhibitions, commercial artists and other art-related businesses require specialized coverage.

Valuation

Most fine arts forms cover artwork and other collectibles on an agreed value basis. This means you and your insurer agree on the value of each item at the beginning of the policy period. If a piece of artwork is lost, damaged or stolen, the loss will be calculated based on the agreed-upon value.

A deductible applies to each loss.

When purchasing fine arts coverage, make sure that the values you submit to your insurer are accurate. If you aren't certain about the value of an item, have the property evaluated by a reputable appraiser. Your policy should include a list of each insured item and its agreed value. If an item is destroyed or stolen, you insurer will not pay more than its agreed value less the deductible.

Covered Property

Most small businesses that purchase a fine arts floater are insured under a scheduled form. This type of form covers the items listed in the declarations. Unscheduled property is not covered. An advantage of a scheduled form is that the value of each insured item is designated in the schedule. Business owners know in advance how much they will receive from their insurer if an insured item sustains a total loss.

Businesses that buy new artwork frequently may consider purchasing fine arts coverage under a blanket form. The latter covers any property that meets the definition of "fine arts" in the policy. Insured items need not be listed individually.

Most fine arts forms cover property you own as well as property that is in your custody but owned by someone else. For example, your business displays artwork owned by an artist. If the artwork is scheduled on your policy, it qualifies as covered property.

Many forms provide limited coverage for property that is in transit or at a location you don't own. Property that is on display at an exhibition may be specifically excluded. Read your policy carefully before moving artwork off-site.

Most schedule forms provide some coverage for fine arts you acquire during the policy period. The limit is usually low, and the coverage is short-term (often 30 days). If you purchase new artwork, contact your insurer promptly to have the item added to your policy.

Excluded Perils

Fine arts forms contain fewer exclusions than a standard property policy. Most cover damage caused by any risk that is not specifically excluded. Here are some common exclusions:

  • War, nuclear hazard, government action (such as seizure)
  • Dishonesty committed by you, a company principal or your employees
  • Mysterious disappearance
  • Voluntary parting with property
  • Release of pollutants
  • Wear and tear
  • Earthquake and flood.
  • Breakage of fragile items.

The breakage exclusion is often similar to the one found in standard property policies. However, this exclusion can be eliminated for an additional premium. Coverage for flood and earthquake may also be available.

Extended Coverage Endorsements

Small businesses often obtain fine arts coverage as part of an "extended coverage" endorsement attached to a commercial property or business owner's policy. Many insurers offer these endorsements as a marketing tool. They are a convenient way to obtain a group of coverages at a reasonable price.

There are several issues to consider when fine arts insurance is provided under an "extended coverage" endorsement. First, the limit is usually low, such as $10,000 or $25,000. This limit may be insufficient to cover a valuable piece of artwork. A second problem is valuation. Under many endorsements, damaged fine arts are valued based on the least of the following:

  • the cost to repair the property
  • the cost to replace the property
  • the property's actual cash value

As noted previously, fine arts should not be insured on an actual cash value basis.

Thirdly, fine arts may be subject to the same exclusions found in the property policy. Some endorsements amend the exclusions section in the policy so that only a few of them apply to fine arts. Others make no changes at all.