Fine art insurance companies hear a lot of sob stories—“The maid attacked it;” “The pipe burst and water splashed all over you;” “The movers lost it”—but more important than what happened to a piece of art is whether it can be repaired. Can the restoration price of a work be lower than the total value of the work? Does the damage reduce the value of the item? Is the artwork a total loss? Entire teams get to work finding answers to these questions, including claims adjusters, art appraisers, art conservators, and sometimes even dealers. The final verdict may not entirely depend on the insurance company. “Owners of art may hire their own experts,” Dorit Straus, an independent fine art insurance adjuster, told the Observer. “There’s people on one side and there’s people on the other side. It’s always a delicate conversation.”
These conversations may begin diplomatically but can turn into all-out war when the parties disagree. Billionaire art collector Ronald Perelman is suing a consortium of insurance companies for $410 million, claiming that five paintings in his collection – a Cy Twombly, two Ed Ruschas and two Andy Warhols – suffered smoke damage in a 2018 fire at his Long Island estate in New York. Perelman claimed in the lawsuit that his artwork lost its “spark” and “charm” due to the smoke. The insurance company claimed that the five works of art were not actually damaged in the fire and that their cumulative value was only $103 million. In September of this year, a New York State Supreme Court judge ruled against Perelman, siding with the insurance company, saying “[t]his artwork [can] Enjoy as before. “
This lawsuit is newsworthy in part because it is so unusual. When all goes well (which it usually is), the adjuster inspects the art and then hires a conservator with expertise in the type of art to determine if and how much the damaged item can be repaired. Assuming that the cost of conservation is not significantly higher than the value of the artwork, the artwork will soon be handed over to conservators to begin processing. “You don’t want to delay for a long time because that could make the problem worse or even permanent,” Strauss explains. After the restoration is complete, an appraiser (“a person with expertise in fine arts, as opposed to a real estate appraiser or generalist”) or a dealer with relevant expertise appraises the item to determine whether and how much the value of the now-restored piece has decreased. There’s no mathematical formula; it’s all happenstance. This might be a small tear in the canvas, but it’s more significant if the tear is in the center or edge of the painting.
Art insurance usually covers the entire cost of restoration. If the loss of value due to damage exceeds 30%, the insurance company will compensate the policyholder for 30% of the insured value. However, with particularly unique works of art, complications may arise. “Photographs are extremely difficult to restore,” Albert Albano, former executive director of the Intermuseum Conservancy, told the Observer. “Once a homogenous surface is disturbed, this damage is difficult to conceal, resulting in a significant decrease in aesthetic value.” And presumably market value. However, the extent and location of damage to a photograph may determine how much its market value is affected, as is currently being argued in a New York state court regarding the 2011 water damage to part of a photographic triptych by Richard Avedon. chicago seven (September 25, 1969). The triptych’s owner, the Richard Avedon Foundation, claimed the work was worth $2.5 million before damage and just $50,000 after the accident, while AXA Art Insurance assessed the pre-damage value at $2 million and its subsequent value at $1.6 million.
When there is a disagreement between the valuation submitted by the insurance company’s appraiser and the valuation submitted by the policyholder, many art insurance policies have arbitration clauses that hire a third appraiser to evaluate both valuations. In the Avedon dispute, the arbitrator valued the photo at $825,000 before damage and at $552,750 after damage.
Mary Pontillo, national fine product leader for insurance brokerage Risk Strategies, said other options exist. “A photograph may be reprinted by a living artist, and sometimes even by the artist’s estate, thus avoiding a total loss. The circumstances of a total loss are actually determined on a case-by-case basis.”
In the case of paintings, conservation may be well done and damage will not adversely affect fair market value. In 2006, casino owner Steve Wynn displayed his collection of 1932 Picassos. dreamwhen potential buyer Steven Cohen accidentally put his elbow through the canvas. The price at the time was $139 million. Restoring Picasso’s work took years and involved stitching together the canvas and filling in lost areas of paint, but Cohen remained interested in the work and purchased it in 2013 for $155 million. (“If it hadn’t been damaged, it would probably have sold for more,” Strauss said.)
For older works of art — paintings by old masters or even works by modern masters — an insurance industry art appraiser or expert may choose not to say an item has been completely destroyed “unless it is no longer identifiable,” Strauss said. “Even severely damaged works may retain cultural significance, although determining their actual value is not easy.”
For older art, conversations about the extent of damage and loss of value typically occur between the collector and the insurance company (or its representatives). The conversation is wider when it comes to contemporary artworks by artists who are still living, as these artists may have a say in the matter. Some artists will offer to restore their works or want to select and oversee a restorer, while others may believe that their creations will never be the same and ask that their names not be associated with the artwork. Under federal law, an artist “has the right to prevent the use of his or her name as the author of a work of visual art if the work is distorted, destroyed, or otherwise modified in such a way as to damage the artist’s honor or reputation.” One artist denied that his artwork could eliminate all market value—the reason given by Sotheby’s was the removal of a 1990 screen print mounted on an aluminum panel from a 2011 auction. cowboy milkingCady Noland told Sotheby’s after the artist saw that a corner of the work was damaged “her honor and reputation [would] damaged by provision [it] Sold in association with her name. ” A lawsuit filed by dealer Marc Jancou, a consignor of Nolan’s work, was dismissed in 2013.
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