Why It's Crucial To Have Your Art Insured and How to Go About It
I once had an artist friend who was talented enough to have won, in her twenties, an important award but who was a real dud in the local art market. She would probably have done well in an art capital like New York or London, but Manila? She was too avant-garde, too ahead of her time for local collectors. Not being able to make a living from her art, she reinvented herself as a businesswoman and a successful one at that. But in her heart of hearts, she still yearned for that connection to the world of art. So she would, from time to time, dabble in art dealership.
Over time she accumulated a fine collection of paintings valued (this was about 25 years ago) at over a million pesos. Not having a retail space as an art dealer—remember, this was more or less a hobby—she stored her inventory in the basement of the luxury condominium that she was living in at that time.
But even well-appointed condominiums are not immune to the depredations wrought by super-typhoons, and one such howler poured water into the building’s basement, irreparably damaging the artworks. Oh, the heartache! But, she thought, maybe she could claim against the condominium’s insurance.
Alas, it was not to be. As she mournfully narrated to me over the phone, the insurance company had refused to pay her a centavo. And, unkindest cut of all, her treasured million-peso inventory was valued by the insurer at a mere P200!
For those unfamiliar with the way general insurance operates, such an incident reeks of unfairness, and certainly the artist-businesswoman thought so. However, before you conclude that the stone-hearted philistine of an insurer had defrauded her of her due, let me hasten to point out that the condominium association was the actual owner of the policy, having taken out and paid for the insurance coverage of the building. Thus, any payment of claims on damage to the building—and only to the building, nothing else—had to be made to the association itself. And the P200 valuation of the art collection was not a vile stratagem to weasel out of the insurer’s obligations. In fact, it is a standard provision of a standard insurance policy approved by the Insurance Commission, and reads: “Unless otherwise expressly stated in this policy, this insurance does not cover any curiosity or work of art for an amount exceeding P200.”
Does that provision mean that art cannot be insured?
Not at all. Artworks can and should be insured. However, they are valued very differently from the way value is assigned to real property and equipment, cars and household goods. Salvador Lacson, managing director of Lacson & Lacson Insurance Brokers, one of the leading general line insurance brokers with extensive experience in insuring works of art, explains that typically, property is insured based on the actual cost or cost or replacement—which is why you should increase the insurance coverage on your house every few years. Another method is sound value, which is replacement cost minus depreciation.
You should keep the receipts of your purchases, not only for insurance purposes but also to establish the provenance of your painting should you decide to sell it.
Art Appraisal. These methods of valuation, however, get thrown out of the window when it comes to artworks. An original painting by a master has no replacement value; it is unique and irreplaceable. The value of a piece of art cannot be reduced to the cost of the canvas and paints that have been used to create a painting, or to the stone and welded steel or brass of a sculpture. Its value depends on a number of factors—the talent and skill of the artist, his unique vision of the world, his popularity, whether he has garnered major recognition like being named a National Artist. If he has passed away, the creation of art pieces has ceased, thus limiting the supply and driving up the prices of the extant pieces.
The value of a work of art will not be set by the insurance company. The ideal would be to consult an independent professional such as a curator to estimate the value of the piece, but more often the insurance coverage will use the purchase price or the selling price of the artist. What is important is that the value as stated in the insurance policy is agreed upon by both the insurer and the owner of the artwork.
Lacson advises that when you insure your treasures, do not lump them together with your household goods under a general, vague description such as “P20 million for various household objects and works of art.” Do make a list of the art pieces, assign a value and a detailed description of each; for example, P50 million for Blood Compact by Fernando Amorsolo, four-by-six feet.
Be prepared for anything. You can insure your collection with basic coverage for fire and lightning. However, this coverage will not include fire due to explosion, earthquake, typhoon, flood or other natural perils. Lacson recommends a policy with extended coverage, or what is called “all risks of accident” which would cover your artwork against almost all perils, even those not included under the basic coverage mentioned above. However, even an “all risk” policy excludes a number of conditions, for example, loss or damage from vermin. While robbery and theft are covered, in the Philippines the category of “Broad theft” (unexplained disappearance or theft) is excluded.
The value of a piece of art cannot be reduced to the cost of the canvas and paints that have been used to create a painting, or to the stone and welded steel or brass of a sculpture.
Not only private collectors but also museum curators and art dealers should carry insurance coverage on the art pieces on their premises. Art dealers are especially vulnerable. Most are single proprietors or partnerships that accept paintings for sale on consignment and are personally liable for loss or damage to artworks in their premises. Lacson, who has arranged for insurance coverage for art that has been shipped from Manila to Europe for exhibit and then back again, also recommends all-risk transit insurance for art that will be moved from one location to another, for example, a transfer of permanent residence from one country to another.
How much would the premium cost?
Certainly much less than insuring your car; the rate varies from 0.15 to 0.5 percent of the value of the work of art, depending on such factors as the location of the item, the neighborhood, security, and loss history of the buyer of the insurance. For example, the premium on the painting that you permanently keep in your house in Forbes Park, with its quiet neighborhood, houses built of first-class materials set on big lots and security guards at the gate would cost much less than the painting of equivalent value which you keep in your office in your paper mill factory, with combustible materials strewn around, and surrounded by squatter shanties.
However, if you decide to transfer the painting in the factory to your house in Forbes, the improved location would result in a lower premium. At any rate, any transfer of works of art from one location to the other should be communicated to the broker. A factor that drives up the ultimate cost of the insurance to the buyer, though, is the premium tax, which is 24.7 percent of the basic premium.
It is advisable to have photographs or videos of your collection, not just for making pretty note cards with, but for documentation purposes.
Preparing for the worst-case scenario. In case, heaven forbid, your house or office goes up in flames and your treasured art collection goes up with it, you will need to provide the insurance company with documents to support your claim of loss. It is advisable to have photographs or videos of your collection, not just for making pretty note cards with, but for documentation purposes. These should be kept together in a safe place with the insurance contract. Insurance companies do not usually require that you submit such photographs to them when you first apply for insurance coverage, but you can provide your broker with a set to keep in your file; this will help facilitate your claim later on. In case of theft, a police report is also required.
And, incidentally, you should keep the receipts of your purchases, not only for insurance purposes but also to establish the provenance of your painting should you decide to sell it. There is a cost to authentication, and you can reduce this cost if you can produce the documents to show that the work of art is an original and purchased from a reputable gallery known to be used by the artist.
The insurer will compensate you the full value of your work of art in case of fire or lightning loss. However, in case of loss due to earthquake, typhoon or flood, there will be a deductible of two percent of the value of the insurance coverage. Deductibles for other types of insured objects are a fixed amount, for example, P25,000. If the work of art is not completely destroyed, it must be turned over to the insurance company as salvage.