Is title insurance a solution in search of a problem? Back in 2006, ARIS Corporation began offering title insurance, which was designed to calm art collectors who worried that someone might lay claim to an object they purchased innocently. Lawyers and those in the art trade heartily endorsed the concept.
"You sell a painting and then, six years later, something comes up and your headaches begin," said New York City art dealer Edward Tyler Nahem. Those headaches are largely the cost of defending against a lawsuit by people claiming the artwork actually belongs to them and then launching another lawsuit against the dealer from whom one unknowingly bought the art.
Several years later, the opportunity to purchase artwork headache-free does not appear to have been picked up by many art collectors or dealers, and that includes Edward Nahem.
"We haven't written a big number of title insurance policies," said Steven Pincus, managing director of DeWitt Stern, a New York City insurance brokerage firm that specializes in artworks. Robert Salmon, managing director of the New York- and London-based Willis Fine Art said, "The level of interest in title insurance was short-lived and may not have resulted in many policies being written." Yet another fine art insurance broker noted that many collectors find title policies an unnecessary expense -- "they either feel comfortable with the provenance or they just decide to walk away from the person selling it."
Lawrence Shindell, chairman and chief executive officer of ARIS Art Title Insurance, noted that "old habits die hard" and that "it takes a while for the forward-thinking new guard participants to emerge" who both see the value of title insurance and purchase coverage. However, he stated that policy-writing is "increasing at multiples." Neither he nor Judy Pearson, president of the company, would reveal the number of title insurance policies that have been written since 2006, but she claimed that "we wrote as much premium for the first six weeks of 2009 as in all of 2008, and it has been continuing at that pace ever since." Those policy-holders include private collectors, art dealers and gallery owners, auction houses, trust and estate attorneys and "more than one museum." The works of art involved range widely, from objects costing only $7,000 to $100 million, she said.
That person selling it is most often an art dealer, who might him- or herself consider purchasing title insurance, but Gilbert Edelson, administrative vice-president of the Art Dealers Association of America, noted that dealers tend to "rely on their own research" into the object's history of ownership, referred to as "due diligence." "If there is a problem with the title, no sensible dealer would want to be involved with it. If there is a real question with the title, you're not going to be able to get insurance for it anyway."
ARIS offers coverage for "defects" in title due to theft, illegal export or import, the seller not having the legal authority to sell the work or any liens against the title. ARIS' title insurance policies are not inexpensive, costing between one and three percent of the value of the object, and the price is paid up-front, rather than in installments over the course of the policy. The application form that would-be policyholders are required to fill out is also quite time-consuming, Salmon noted, adding that "if you are able to answer 'yes' to all the questions in the application, you may be led to believe that you don't really need the product." All in all, if title insurance "were cheaper and less cumbersome, it might be a different story."
The major insurers of fine art collections have also found that their private collector clients see little reason to purchase title insurance policies. "We don't hear many requests" for title insurance, Christiane Fischer, chief executive officer of AXA Art Insurance, said, although she stated that there are instances involving inheritances, divorces and stolen artworks in circulation in which such coverage makes sense. Dorit Strauss, vice-president and worldwide specialty fine art manager at Chubb Insurance, also claimed that title insurance "makes sense, but no one wants to buy it." Collectors "expect dealers to have done their due diligence," which should solve the problem of ownership. She noted that Chubb considered adding a title insurance program years ago but found that "the only people who want title insurance are the people who have an impediment to the title of something in their possession, and they are looking to transfer the risk to someone else."
However, Strauss stated that Chubb has added to its all-risk Masterpiece fine arts coverage up to $100,000 in legal defense costs in the event of a challenge to the title of one or more works in a policyholder's collection. The insurer also refers policyholders to the Philadelphia-based Art Title Advisors, which for a fee of between $750 and $2,500 will research the history of ownership of a particular artwork, issuing a report that would clarify all known information about title. Jonathan Ziff, managing director of Art Title Advisors, noted that in a world in which art theft is the third largest area of crime dollar-wise (behind gun- and drug-running) art collectors should position themselves "in the event of a title challenge." However, he said, collectors are "largely oblivious to the potential problems and feel comfortable self-insuring. They feel pretty comfortable about their chances, believing that it's not going to happen to me." Ziff noted that there hasn't been a large number of collectors who have sought his company's services.
That comfort-level may be illusory, Shindell said, since "the art world operates in absolute secrecy. The buyer often doesn't know who the seller is and no one can be certain of title. There is always some degree of risk." Title insurance, he claimed, permits collectors to transfer that risk to a third party -- the insurance company.
Gaps in the history of an artwork's ownership are a concern throughout the art world. Garnering a lot of attention is artwork confiscated from European collectors and art dealers during the Nazi era that has turned up in American collections. Additionally, art buyers are wary of creditors in a bankruptcy proceedings, the government in cases of tax delinquency, banks for artwork used as collateral for loans, contested wills, divorce settlements and other legal judgments. Thefts, however, are of much greater likelihood than artwork contested in divorce or inheritance lawsuits. Even with thefts, the need for title insurance may look increasingly remote, considering art theft databases at the Federal Bureau of Investigations, its European counterpart Interpol and the Art Loss Register in New York and London to which collectors and the art trade may refer.
Title insurance is not necessary in the primary or contemporary art market, Edelson noted, and "more and more of the secondary market is work of postwar art" for which provenance is rarely in question.