05/22/2012 12:36 pm ET Updated Jul 22, 2012

Artists: Is Your Work Insured in Your Gallery?

Earthquakes in Los Angeles, hurricane batters the Gulf Coast, tornadoes rip through Texas, bomb blasts, thefts, fires, car crashes, sabotage: typical newspaper fare. However, for fine artists, an additional concern may be that those earthquakes, hurricanes, tornadoes and other acts of God and man may damage the galleries to which they have consigned their work and, quite possibly, the artwork within them. Will the artists be able to cover their losses?
The answer is, sometimes and perhaps only partially. Maria Porges, a sculptor in Oakland, California, was exhibiting her mixed media work at the James Harris Gallery in Seattle in February in 2001 when an earthquake measuring 6.8 on the Richter Scale struck western Washington State, damaging buildings in Seattle and Olympia. Three of her sculptures suffered extensive damage during the shaking that also damaged the facade of the gallery building, but the gallery's insurance policy did not provide for earthquakes, and "Maria is cast those works on her own," according to the gallery owner, James Harris. There is no money from the gallery or from an insurance company to reimburse Porges for her costs. "I mean, I'm very sorry about what happened -- she is a very nice person and a very good artist -- but earthquake coverage is prohibitively expensive," he said.

Actually, the James Harris Gallery's insurance, which covers all the artworks consigned to the gallery for the amount that the artists would realize in a sale (the retail price less dealer commission, or 50 percent of a work's fair market value), is better than that of many galleries in the United States. Some have no insurance at all. The Barbara Krakow Gallery in Boston only insures (to its full value) works that the gallery owns and has no coverage for consigned pieces. Approximately three-quarters of its inventory are works on consignment. "At one time, we did cover all the works in the gallery, but that became too expensive," Krakow said. "Artists have to decide if they are prepared to bring the work into may gallery under those conditions."

It is rare that an artist ever asks her about the gallery's insurance policy -- does she have one, what does it cover, what are the exclusions -- and she cannot recall any artists refusing to consign work to her because of a lack of insurance. "Artists have to weigh things, the chance to have their work shown professionally and to a larger audience versus the risk of damage," Krakow said. "I think the risk is rather small, and most artists seem to agree."

Most damage to consigned artwork occurs during transit, from the artist's studio to the gallery or from the gallery to the buyer's home or office. When artists ship their work, generally they are responsible for insuring it; the carrier then bears liability for damage. Some artists may maintain an insurance policy for works consigned to galleries that do not insure the art in their possession -- the cost is usually $50 per year for $10,000 in coverage.

The fact that a gallery has insurance for consigned artworks does not alleviate all of an artist's concerns. In the event of damage, the questions arise of how extensive is the damage (is it worthwhile to repair the piece) and who should make the needed repairs. Artists may believe that they are in charge of their own artwork, but insurance companies usually include a clause in their policies that gives them the right to determine whether or not an object is reparable. There may be instances in which an artist and an insurance company disagree, requiring the gallery to intercede -- presumably on the side of the artist. "You can always sue the gallery if the gallery won't fight on your behalf with the insurance company," said Joshua Kaufman, a lawyer in Washington, D.C., who has represented many artists. He added that the gallery itself may be liable for damage if it occurred as a result of negligence or mishandling. "Lack of insurance coverage doesn't mitigate liability, either," he said.

A less common but still plausible problem may arise when a gallery makes an insurance claim on an irreparably damaged artwork. By paying the settlement, the insurance company gains title and physical possession of the art. The company may decide on its own to have the piece repaired and then sold as a work by the artist. Under moral rights law, artists may claim that the art in its current state is no longer their work and is prejudicial to their reputations; they may publicly disown the piece and enjoin the insurance company (or anyone else) from attributing it to them.

Many of these solutions involve filing a lawsuit, which is expensive. Better to ask questions in advance of consigning artwork and negotiate for certain provisions (best when in writing on a consignment agreement or contract):

  • Does the gallery have insurance? What is covered under the policy? What are the exclusions (what isn't covered)?
  • If consigned artwork is damaged or destroyed, what would the artist receive? When the Ann Nathan Gallery in Chicago burned down in 1989, along with eight other galleries in the same building, the artists received only three-quarters of the amount they would have received had the works been sold. The insurance company had applied a "blockage rule" for discounting artworks sold en masse. Most galleries insure to the value of the consignment price, but artists may ask for the full retail value. In fact, an artist sued his California dealer after receiving the commissioned price of 60 percent for nine paintings that had been destroyed in a fire at the dealer's gallery, claiming that he should not have to a pay a commission for works that were not sold. In 1986, the California Court of Appeals agreed, overturning a lower court's decision on behalf of the dealer and awarding the artist the full retail value.
  • If artwork is damaged, does the artist have the right of first refusal to repair the art at cost?
  • When an artist's work is insured by a gallery, the "artist should be listed as a named insured" -- sometimes called a loss-payee -- "on the policy, which means that the artist gets paid directly by the insurance company and doesn't have to wait while the gallery monkeys around with his or her money," Kaufman said.