How are works of art insured?
Insurance is encountered in many areas of life, protecting against fortuitous events by transferring risk to an insurance company for a fee. In this regard, art is no exception. But the procedure for taking out insurance on artworks has certain specific features.
In principle, art insurance can be divided into two main groups:
- Insurance of collections belonging to natural persons
- Insurance of collections of legal persons (e.g. companies or museums).
The coverage differs in the terms and conditions on which the insurance is based.
Insurance of individuals’ collections
For individuals, artwork risks are covered under homeowners’ insurance. However, these policies typically set low liability limits, so if the art collection is large and valuable, special terms and conditions must be arranged, most often requiring the approval of the headquarters of the insurance company. In some cases, it will even be necessary to reinsure the risk. Typically, reinsurers set low limits on their liability in basic reinsurance agreements, due to the level of potential risk.
Insurance of collections of legal persons
Works of art owned by institutions such as companies, galleries or museums are covered under all-risk property insurance. This is comprehensive insurance protecting works of art from sudden, unforeseen events, including theft. But insurance does not cover the impact on the artwork of various factors that, over time, can lead to slow degradation. This coverage applies to insurance of property at a particular location. These types of products typically set higher liability limits for works of art. It is possible to arrange protection for the entire collection, but if these are special collections or antiquities of significant value, it is most often necessary to seek bespoke solutions.
There are also entities on the market specialising in arranging comprehensive insurance agreement for works of art, which can include coverage for all risks—including theft, transportation, and even the period for packing artworks.
One of the important requirements included in the general terms and conditions of insurance for works of art is anti-theft protection. Some insurance companies require constant surveillance; for others, an alarm linked to notification of a security agency is sufficient; in other cases, a safe will be required. Such safeguards become particularly relevant when a claim is made, where their absence may constitute grounds for the insurer to deny the claim.
Most Polish insurers offer coverage within Poland. Coverage outside the country requires further special terms and conditions. Situations may also arise where works located in Poland are insured by foreign entities or under special international schemes. Such a solution is used, for example, when bringing certain collections into the country for exhibitions, or to comprehensively insure the holdings of international auction houses.
The value of the work and its impact on insurance
From the policyholder’s perspective, two amounts are most important:
- The sum insured, constituting the upper limit of the insurer’s liability pursuant to Civil Code Art. 824 §1
- The insurance premium, which the policyholder must pay as a way of compensating the insurance company for assuming the risk for a certain period.
At the same time, the most important factor affecting the sum insured and the insurance premium is the value of the work. In principle, the market value of the work is accepted as determined by an appraisal or purchase document. This amount reflects not only the cost of producing the work, but also its artistic value. Complex valuation procedures are handled by qualified appraisers.
Confidence is key
When insuring artwork, the client’s trust in the insurer, especially when it comes to private collectors, is a major consideration, as private collectors are often afraid to disclose information about their holdings. The solution is to minimise the number of people involved in preparing the particular agreement. The terms and conditions of insurance structured in this way are usually known only to the client and the underwriter. Thus, in this case, the obligation of insurance secrecy under Art. 35 of the Insurance and Reinsurance Activity Act takes on special significance.
As a type of professional secrecy, insurance secrecy also applies to insurance brokers if they happen to be involved in conclusion of a particular insurance policy. Under Art. 439 of the Insurance and Reinsurance Activity Act, unlawful disclosure or use of an insurance secret is an offence punishable by a fine, probation or imprisonment for up to 2 years, or up to 5 years if the perpetrator acts for financial or personal gain.
Conclusion
Undoubtedly, works of art are a special subject of insurance. Sometimes, standard insurance products are enough to cover them. In other cases, bespoke solutions may be necessary. Undoubtedly, what sets art insurance apart from other types of coverage is the special trust and confidentiality between the policyholder, the broker and the insurer.
Klaudiusz Mikołajczyk, Insurance practice, Wardyński & Partners
