AAIS FINE ARTS COVERAGE FORMS ANALYSIS

Fine arts are considered covered property in all property coverage forms but only for their utilitarian value, not their intrinsic value. This means that a Picasso painting is valued based on the canvas, frame, and paints, not on the artist. As a result, the most important element of this coverage is appropriately valuing the fine art object based on its appraised value.

Fine arts coverage is important to businesses and individuals who buy, sell, or collect such property. Policies written for those who sell such property are called dealers forms because their emphasis is on the retail sales of such property. Other policies are available for those who buy, collect, and keep such property at business or residence premises.

The American Association of Insurance Services (AAIS) Fine Arts Dealers Coverage Forms apply to property that consists of various types of fine arts that dealers and galleries own. It is not to be used by individuals, commercial entities, or collectors not in the fine arts business.

The AAIS Fine Arts Floater, Comprehensive, and Blanket Coverage Forms cover a variety of objects of fine art owned by individuals and businesses that are not in the fine arts business. These owners want broad coverage on the fine arts they own. It is not to be used by fine arts dealers, galleries, or museums whose primary business involves works of art.

AAIS has developed five fine arts coverage forms. The IM 7350–Fine Arts Dealers Coverage Analysis is analyzed first, and the differences between it and the other four forms are analyzed afterward.

ELIGIBILITY

Fine Arts Dealers coverage is generally available for any business enterprise that sells fine art. Fine Arts coverage forms and floaters are for individuals and commercial enterprises that own or collect fine arts.

POLICY CONSTRUCTION

AAIS Fine Arts coverage requires at least these four forms:

CL 0100–Common Policy Conditions. This form contains five basic conditions that apply to all AAIS commercial lines coverage forms and policies.
IM 7900–Inland Marine Declarations
The appropriate fine arts coverage form
The corresponding schedule of coverages

SCHEDULES OF COVERAGES

IM 7355–Schedule of Coverages–Fine Arts Dealers Coverage is used with IM 7350–Fine Arts Dealers Coverage.
IM 7356–Schedule of Coverages–Fine Arts Dealers–Blanket Coverage Form is used with IM 7351–Fine Arts Dealers–Blanket Coverage Form.
IM 7405–Schedule of Coverages–Fine Arts Floater is used with IM 7400–Fine Arts Floater.
IM 7407–Schedule of Coverages–Fine Arts Coverage–Comprehensive Form is used with IM 7401–Fine Arts Coverage–Comprehensive Form.
IM 7409–Schedule of Coverages–Fine Arts Blanket Form is used with IM 7402–Fine Arts Coverage–Blanket Form.

IM 7355–SCHEDULE OF COVERAGES–FINE ARTS DEALERS COVERAGE
(01 12 changes)

This Schedule of Coverages is used with IM 7350–Fine Arts Dealers Coverage. IM 7355 contains the following information:

Policy Number (01 12 addition)

The 01 12 edition added a space to enter the policy number.

Covered Premises

All occupied and operated premises where coverage is desired must be listed.

Premises Limits

The limit of insurance at each covered premises is entered in the space provided. It is the most paid in any one occurrence for loss to fine arts.

The 01 12 edition added the word “Limit” because Limit is a defined word.

Coverage Extensions

The limits on the Schedule of Coverages for the following coverages apply to all covered locations:

Additional Debris Removal Expenses

The limit is $5,000 unless a different limit is entered.

Emergency Removal

The number of days is ten unless a different number of days is entered.

Supplemental Coverages

Each of these coverages provides additional limits of coverage or additional coverage. Required entries vary by type of coverage.

Pollutant Cleanup and Removal

The limit is $5,000 during each separate 12-month policy period unless a different limit is entered.

Transit

The limit is $5,000 unless a different limit is entered.

Deductible

One deductible is entered that applies to all covered premises.

Coinsurance

One of the following coinsurance options must be selected:

Not Applicable
100%
90%
80%
Other Percent (specify)

Additional Information (01 12 change)

This section of the schedule of coverages lists endorsements and forms included when the policy is issued.

The previous edition referred to this section as Optional Coverages and Endorsements.

IM 7350–FINE ARTS DEALERS COVERAGE FORM ANALYSIS

This analysis is of the 04 04 edition.

Agreement

This section states that the insurance company provides the coverage described in the coverage form and in the schedule of coverages in return for the named insured paying the premium. This is subject to all the coverage form's terms, conditions, endorsements, and definitions.

Definitions

Defined terms are used throughout the coverage form. The terms may restrict or broaden the common usage of the terms and, therefore, should be carefully reviewed because coverage may be enhanced or restricted through a definition. Thirteen terms are defined:

1. You and your

These are the parties named on the declarations as the insured.

2. We, us and our

This is the insurance company that provides the coverage.

3. Antique

An object whose value is derived from it being over 100 years old and exhibiting artisanship of a style or fashion from the past.

4. Earth movement

Earthquake is one type of earth movement. Landslide, mudflow, mudslide, mine subsidence, sinking, rising, or shifting of earth, or any other movement of the earth’s surface are also types of earth movement. This definition specifically excludes sinkhole collapse as earth movement.

5. Fine arts

Property that is considered rare, historical, or has artistic merit. Examples are paintings, etchings, pictures, tapestries, art glass, rare glass, art glass windows, valuable rugs, statuary, sculptures, antique furniture, antique jewelry, porcelains, and bric-a-brac.

Example: Mavis loves the painting that she remembers being in her great-grandparents’ home, then her parents’ home, and now in hers. She is sure that it is incredibly valuable and takes it to several appraisers who explain that it has absolutely no artistic merit and is basically worthless. Mavis’ painting would not be considered fine arts.

6. Flood

Flood is flood. It is also surface water, waves, tidal water, or overflow of bodies of water. Spray that results from any of these is also considered flood, and whether or not the wind is driving the spray is irrelevant.

7. Limit

This is the amount of coverage that applies to the insured property.

8. Pollutant

This is a broad and expansive term. It is solids, liquids, thermal or radioactive contaminants, and irritants. It includes, but is not limited to, acids, alkalis, chemicals, fumes, smoke, soot, vapor, and waste. Waste includes materials intended for recycling, reclamation, and reconditioning, as well as for disposal. Visible and invisible electrical or magnetic emissions and sound emissions are also considered pollutants.

9. Schedule of coverages

This is any page labeled as such that contains coverage information, including declarations or supplemental declarations.

10. Sinkhole collapse

When the earth’s surface suddenly settles or collapses into an underground opening created by water acting on limestone or some other rock formation, it is considered sinkhole collapse. The value of the collapsing land or the cost to fill the sinkhole is not part of sinkhole collapse.

11. Specified perils

The named perils of aircraft, civil commotion, explosion, falling objects, fire, hail, fire extinguishing equipment leakage, lightning, riot, sinkhole collapse, smoke, sonic boom, vandalism, vehicles, volcanic action, water damage, the weight of sleet, snow or ice and windstorm. Two of these terms need further explanation.

Falling objects does not include loss to personal property stored in the open. It also does not include damage to the interior of buildings or personal property stored in buildings unless a falling object first breaches the building's exterior.

Water damage is the sudden or accidental discharge or leakage of water or steam. The discharge or leakage must be a direct result of the breaking or cracking of a part of the system or appliance holding the water or steam.

12. Terms

All provisions, limitations, exclusions, conditions, and definitions that apply to this coverage.

13. Volcanic action

Airborne volcanic blast or shock waves, ash, dust, and particulate matter. However, removal of such dust, ash, or particulate matter that does not damage covered property is not volcanic action. Lava flow is also volcanic action.

PROPERTY COVERED

The insurance company covers direct physical loss or damage by a covered peril to the named insured's stock in trade. Similar property of others in its care, custody, or control is also covered.

Coverage is limited to only the stock in trade or property of others that is fine arts, which is at a location listed on the schedule of coverages. The named insured must both occupy and operate the location.

Example: The Ritzy Ditsy Art Gallery owns and operates an art gallery in a medium-sized Midwestern city. It sells its own purchased art objects and art items that belong to others on a consignment basis. Because Ritzy also offers repair and renovation services, it has the property of others on the premises for such services. Ritzy takes great pride in its facility and the fact that it is the only operation of its kind in the greater metropolitan area. Because of this, many area artists turn to Ritzy Ditsy to display and sell their work, as this gallery is a destination and a magnet for patrons of the arts in its metropolitan area. This coverage form insures both owned property and property of others in Ritzy Ditsy's care, custody, or control.

Property Not Covered

Seven specific types of property are not covered:

1. Coins and Stamps

Individual and collection of coins (numismatic) and stamps (philatelic) are not covered.

2. Contraband

This is particularly important because there are many cases of fine arts that come into the possession of an art dealer from a less than reputable source. Property that is illegal to possess is not covered. Property that is legal to possess but is being used as part of an illegal trade or transported illegally is also not covered.

3. Furs

Fur and garments that are only trimmed in fur are not covered. This could be a particular problem with antique textiles because when fur is on the item, the entire item is no longer covered. This property is more correctly insured under furriers customers coverage forms, although that policy may not be the best to cover an antique item. Such an item may require manuscript coverage.

Related Article: ISO Furriers Customers Coverage Form

4. Jewelry, Stones and Metals

Antique jewelry, regardless of what it contains, is covered. However, all other precious and semi-precious stones, gold, silver, platinum, and other precious metals and alloys and jewelry are not covered.

5. Money and Securities

A number of different types of property are not covered under this item. Currency, accounts, food stamps, evidence of debt, and lottery tickets not held for sale, in addition to money, notes, or securities, are not covered.

Note: This property is more correctly insured under commercial crime coverage forms.

Related Article: Commercial Crime Coverage Analysis

6. Vehicles

Automobiles or any other type of self-propelled vehicle designed for use on public highways is not covered.

Note: This type of property is more correctly insured under commercial automobile coverage forms, although a specialized antique or customized automobile coverage may be more appropriate.

7. Waterborne Property

Property while in transit and in the custody of carriers for hire is covered while waterborne. Any other waterborne property is not covered.

Coverage Extensions

Provisions That Apply To Coverage Extensions

There are two coverage extensions. The limit for each is either the limit on the schedule of coverages or the default limit included in the coverage form. These limits are part of the applicable limit for covered property and not in addition to it unless otherwise indicated. These limits are not added to or combined with limits for any other coverage extension or supplemental coverage and are not subject to any coinsurance provisions that apply elsewhere in the coverage form.

1. Debris Removal

When a covered peril damages or destroys covered property, the cost to remove any created debris is covered under this extension. Debris removal does not include any costs for removing, restoring, replacing polluted land or water, or to extract pollutants.

There are two parts to the Limit section. The first is restricting any debris removal payment to no more than 25% of the amount paid for the actual direct physical loss or damage. The second part is that when the debris removal and the physical damage loss are added together, no more than the limit of insurance is paid.

An additional $5,000 (or a higher amount entered on the schedule of coverages) is available if the debris removal expense is more than 25% of the loss amount or if the combined cost of loss and debris removal is more than the limit of insurance for the covered property.

Debris removal expenses must be reported to the insurance company within 180 days of the date of loss for this extension to apply.

2. Emergency Removal

a. This covers direct physical loss to covered property that was removed from the scheduled location in order to avoid loss or damage from an impending covered peril. The loss can occur while in transit between the scheduled location and the sanctuary location. This coverage is unique because the property that is being moved is not subject to any exclusion while in transit or at a sanctuary location. However, the reason for moving the property must be due to a covered peril.

b. Coverage applies for up to ten days after the property is first moved but does not extend past the policy’s expiration date. An entry can be made on the schedule of coverages to increase the number of days.

Note: Coverage does not extend past the expiration date, which means that if the insured has property at a sanctuary location when coverage renews, the sanctuary location must be listed as a premises, or coverage no longer applies.

Example: Ritzy Ditsy is painfully aware of the potential damage to some of its more delicate stock in trade by tomorrow's predicted tornados. As a result, Ritzy's owner packs up as much of it as she can fit in a van, drives it to her home, and waits for the watches and warnings to expire. She is thankful that the tornado did not cause the anticipated damage. On her way back to the store, she swerves to avoid a duck, and the van flips into a culvert. All of the property is destroyed. Because of the Emergency Removal coverage, the full property coverage limits apply to this loss instead of the transit limit of insurance.

Supplemental Coverages

Provisions That Apply To Supplemental Coverages

There are two supplemental coverages. Each has its own default limit that can be increased by entering a higher limit on the schedule of coverages. Limits for any supplemental coverage are separate from the applicable limit for the covered property, not part of it.

The limit available for coverage described under a supplemental coverage is the only limit available for it. It is not the total of the limit for a supplemental coverage and the limit for the covered property. The limits are not added to or combined with limits for any other supplemental coverage or coverage extension. They also are not subject to any coinsurance provisions that apply elsewhere in the coverage form.

1. Pollutant Cleanup and Removal

a. The insurance company pays the named insured's expenses to extract pollutants from land or water if a covered peril that occurred during the policy period caused the pollutants to be released or discharged.

b. This is immediate coverage, so any expenses to extract pollutants are paid only when reported to the insurance company within 180 days of the date of loss.

c. Costs related to testing, evaluating, observing, or recording pollutants are excluded except for those costs of the extraction process.

d. The most paid at any one location is $5,000 for all such expenses that a covered peril that occurs at that location during each separate 12-month policy period causes. This limit can be increased.

2. Transit

Coverage applies to direct physical loss by a covered peril to covered property it is while in transit. The most paid in a single occurrence is $5,000. This limit can be increased.

Perils Covered

Coverage applies to direct physical loss unless the loss is limited or caused by an excluded peril.

Perils Excluded

1. Primary Exclusions

The first group of exclusions is essentially absolute. Subject to specific exceptions, loss or damage by each is totally excluded, regardless of any other cause or event that contributes to a loss, either concurrently or in any other sequence. The insurance company does not pay for any direct or indirect loss or damage caused by or results from any of these events.

a. Civil Authority

There is no coverage for loss that results from an order any civil or government authority issues. These orders may include seizure, confiscation, destruction, or quarantine of property, but this exclusion is not limited to only these. The only exception is when a civil authority destroys property as a means of controlling a fire, and this action causes the loss or damage. This exception applies only if the fire results from a covered peril.

Example: Gerald is quite surprised when the FBI arrives at his store. They close the store, order all employees off premises, and begin searching through his computers and stock. They begin to pack up certain rare antiquities he had recently acquired from a trusted source. Gerald has no coverage for anything related to the FBI actions.

b. Earth Movement or Volcanic Eruption

Earth movement is not covered except for the following four exceptions:

Eruption, explosion, or effusion of a volcano may result in volcanic action. While the eruption, explosion, or effusion damage remains excluded, there is coverage for the loss or damage the volcanic action causes.
Damage or loss from a fire that results from earth movement is covered, but the earth movement damage remains uncovered.
Damage or loss from an explosion that results from earth movement is covered, but the earth movement damage remains uncovered. This exception does not apply to volcanic activity.
Property in transit is not subject to the earth movement exclusion.

c. Flood

The insurance company does not pay for loss or damage caused by flood.

There are two exceptions:

If fire, explosion or sprinkler leakage results from a flood, the loss or damage from the fire, explosion, or sprinkler leakage is covered but not the flood damage.
Property in transit is not subject to the flood exclusion.

d. Nuclear Hazard

The insurance company does not cover loss or damage caused by or resulting from any nuclear reaction, radiation, or contamination. This is absolute and applies whether or not the nuclear incident was controlled and by whatever means caused. Any loss the nuclear hazard causes is not treated as a loss that fire, explosion, or smoke causes. The only exception is when a fire results from the nuclear fire. Direct loss or damage from that fire is covered, but the damage from the nuclear hazard remains excluded.

e. Sewer Backup and Water below the Surface

Coverage does not apply to loss caused by water that backs up from a sewer or drain or from water below the ground’s surface that exerts pressure on covered buildings or structures.

There are two exceptions:

If fire, explosion or sprinkler leakage results from any of the above, the loss or damage from the fire, explosion or sprinkler leakage is covered but not the other damage.
Property in transit is not subject to this exclusion.

f. War and Military Action

The insurance company does not pay for loss or damage caused by any act of war. Undeclared and civil war or warlike actions by a military force are all considered war. All actions taken to hinder or defend against an actual or expected attack by any government or sovereign authority that uses military personnel or other agents are also considered war and excluded. In addition, acts of insurrection, rebellion, revolution, or unlawful seizure of power and any action any government authority takes to prevent or defend against any such acts are excluded. If any action within the terms of this exclusion involves nuclear reaction, radiation, or contamination, this exclusion applies in place of the nuclear hazard exclusion.

Note: This means that the exception for resulting fire under the nuclear hazard is not covered when it results from war.

2. Secondary Exclusions

The second group of exclusions applies to loss or damage caused by or resulting from any of the following loss events. Some of these exclusions have exceptions, conditions, or limitations that should be noted and reviewed carefully. The insurance company does not pay for any loss or damage caused by or that results from any of these events.

a. Breakage, Marring and Scratching

There is no coverage for loss when caused by or that results from breakage, marring, or scratching of covered property. The exception is that if any of these excluded perils result in a specified peril, coverage applies to the loss or damage that peril causes.

Example: While many of Ritzy Ditsy's objects of art are paintings, it does have a few porcelain vases and several glass objects. Ritzy displays these items in a locked plexiglass display case accessible by only the gallery director and his wife. They are the only ones allowed to clean and reposition these objects. This decision is influenced by the fact that Ritzy Ditsy is unable to find an insurance company willing to write coverage for these perils at a reasonable premium.

b. Contamination or Deterioration

Loss or damage that is caused by contamination or deterioration is excluded. This applies to corrosion, decay, fungus, mildew, mold, rot, and rust. It also applies to any quality, fault, or weakness in covered property that causes it to damage or destroy itself. However, this exclusion is not limited to only these described causes.

c. Criminal, Fraudulent, Dishonest or Illegal Acts

Coverage does not apply to loss caused by, or that results from criminal, fraudulent, dishonest, or illegal acts that any of the following commit alone or in collusion with another:

The named insured
Others with an interest in the property
Others to whom the property is entrusted
The named insured's partners, officers, directors, trustees, joint venturers, members, or managers, as applicable, based on the named insured’s type of business organization
Employees of any of the above groups. Employees are excluded even if the act occurs when they are not at work.

Coverage applies if employees destroy property. It does not apply if employees steal.

This exclusion does not apply to covered property in the custody of carriers for hire.

d. Diminished Value

Some items’ value is reduced after damaged even after they have been repaired. This loss of value is not covered under this coverage form.

Example: A windstorm blew out a window, and water poured into Ritzy Ditsy’s gallery. Although the plexiglass cases protected many objects, a 19th-century bureau sustained significant water damage. The insurance company paid for its renovation and repair but could not restore the lost patina or natural aging. The lost patina reduced the value of the bureau by $10,000, an amount that this insurance did not cover.

e. Loss of Use

There is no coverage for a loss resulting from a delay, loss of use, or loss of market.

Example: The tornado caused the truck delivering Felix’s 20 paintings to arrive three days late. This resulted in his missing the potential customers attending a major convention near Felix’s store. Felix cannot make a claim for the loss of potential market even though it resulted from a tornado.

f. Missing Property

The unexplained or mysterious disappearance of covered property is excluded when there is no physical evidence to suggest what happened to it, and the only proof that a loss occurred is based on an audit or physical inventory. This exception is that covered property is covered while in the custody of carriers for hire.

g. Pollutants

There is no coverage for loss caused by or resulting from any release, discharge, seepage, migration, dispersal, or escape of pollutants. There are three exceptions:

A specified peril causes the event
Coverage provided in Supplemental Coverages 1. Pollutant Cleanup and Removal
When a pollutant release results in a specified peril, the resulting loss from that specified peril to covered property is covered.

h. Processing and Work

The insurance company does not pay for loss to covered property of others caused by processing or other work performed on it.

Example: Ritzy Ditsy re-frames artwork as part of its operations. While working on a $25,000 painting, a tear developed in the canvas that ruined the painting’s value. There is no coverage for this loss.

i. Temperature/Humidity

Coverage does not apply to loss that dryness, dampness, humidity, changes in, or extremes of temperature causes. The only exception is that if a specified peril occurs because of any of these, coverage applies to the loss that specified peril causes.

j. Theft from an Unattended Vehicle

Theft of covered property is not covered if in an unattended vehicle at the time of the loss. There are two exceptions:

The vehicle was locked, its windows securely closed, and visible evidence of forced entry was present
The covered property is in the custody of carriers for hire.

k. Voluntary Parting

When covered property is voluntarily given to others, there is no coverage, even if the surrender was due to a fraudulent scheme, trick, or false pretense.

Example: Jim was expecting an online buyer to arrive and pick up his purchase. The “buyer” arrived, and Jim handed over the purchase. The real buyer showed up two hours later and was dismayed to learn that the items had been given away. The real buyer immediately cancelled his credit card purchase, and Jim had a significant uncovered loss.

l. Wear and Tear

Loss that is caused by wear and tear is excluded.

What Must Be Done In Case Of Loss

1. Notice

The named insured must promptly notify the insurance company or its agent of a loss. The notice must include a description of the lost or damaged property. If a criminal act caused the loss, the appropriate law enforcement agency must also be notified. The insurance company has the right to require that any notice be in writing.

2. You Must Protect Property

During and after a loss, the named insured must take reasonable steps to protect covered property from further loss. The insurance company will pay reasonable costs the named insured incurs to do so. Therefore, it is important that the named insured maintain accurate records to substantiate such costs. These costs are not additional limits, so they will reduce the amount of limits available to pay for the loss. There is no coverage for any repairs or emergency measures performed on property not already damaged by a covered peril.

Note: Such costs incurred reduce the amount available to pay the actual loss.

3. Proof of Loss

The named insured must complete and return the insurance company's prescribed proof of loss forms within 60 days after it is requested. The information provided must include the time, place, and circumstances involved with the loss and information on any other insurance coverage that may apply. It must also include the named insured’s interest and the interest of others with respect to the property involved, including lienholders, loss payees, and mortgagees. Any changes in the title to the property during the policy period must be disclosed, in addition to providing any other reasonable information the company may require to adjust and settle the loss.

Related Court Case: Inflated Sworn Statement Of Loss Voids Policy

4. Examination

Examination under oath may be required in matters that relate to the loss. The insurance company may request these examinations more than once, but such requests must be reasonable. If multiple persons are examined, the insurance company has the right to examine each individual separately.

5. Records

The named insured must produce records that are related to the loss. The insurance company must be allowed to make copies and take extracts of them as often as it reasonably requests. Required records may include tax returns and bank microfilms of all related cancelled checks, but the term records is not limited to just these.

6. Damaged Property

Damaged and undamaged property must be made available for the insurance company's inspection as often as reasonably necessary. The insurance company must be allowed to take samples of the property to the extent necessary to adjust and settle the loss.

Note: This may be a part of the negotiation during the settlement because of the fragility of some of the items.

7. Volunteer Payments

The named insured may not voluntarily make payments, assume obligations, pay or offer rewards, or incur other expenses without the insurance company's express approval. If it does, it does so at its own expense. The only exceptions are those costs incurred to protect property, as item 2. above describes.

8. Abandonment

The named insured does not decide when the insurance company assumes any salvage. Instead, the named insured maintains ownership of the damaged property until the insurance company accepts ownership and does so in writing.

9. Cooperation

The named insured is required to cooperate with the insurance company and to perform all acts specifically stated as its responsibility in this coverage form.

Example: Mustard Seeds is damaged in a fire loss. First in Line insurance company wants to settle the claim quickly, but Mustard Seeds’ owner, Felicia, is very hard to find. She does not answer her phone calls or texts, does not respond to email, and does not answer any certified mail. Because Mustard Seeds is getting no cooperation from Felicia, they deny the claim.

Valuation

1. Your Property

Fine Arts Dealer valuation is unique because it is neither replacement cost, market value or actual cash value.

The value is the sum of the following two items:

Purchase Price is defined as the named insured’s cost to acquire the property.
Acquisition Expenses are defined as those expenses beyond the purchase price that the named insured incurs to acquire the property and to prepare it for sale. These expenses include shipping, mounting, and framing, as well as restoring and refurbishing costs.

There is a limitation on acquisition expenses. The insurance company will pay no more than 25% of the property’s purchase price for such expenses.

Example: Ritzy Ditsy purchases a painting for $25,000. It needs restoration, and the cost to do so is $10,000. After the restoration, the painting's value is $75,000. While being sent to an exhibition, the painting is destroyed in an accident before it arrives. Ritzy Ditsy receives $25,000, the purchase price, plus $6,250, the restoration amount, limited to 25% of the purchase price, for a total of $31,250 for the loss.

2. Property of Others

There are two ways to value property of others.

a. Consignment Amount is the preferred method. It is the value of property of others as stated in writing in the consignment agreement between the property owner and the named insured. The written agreement must be in place prior to any loss.

b. Absence of Written Consignment Amount is used when no written agreement exists. In that case, the property value is based on its fair market value at the time of loss.

3. Property Sold

Property that has been sold and is not yet delivered is valued at the property’s selling price. This value is then reduced by the following:

· Discounts that would have been provided to the buyer

· Any expenses the named insured does not incur that it normally would have incurred for property sold

Example: If the painting in the example above were sold for its value of $75,000 and in the process of being delivered when it was destroyed, the value would be $75,000, less discounts and unincurred expenses, instead of $31,250. A discount could have been a 10% payment in cash discount. The delivery expenses that were not incurred are an example of another unincurred expense.

4. Pair or Set

The value of a loss to part of a pair or set is not the entire value of the pair or set, but it is also not merely the value of the individual item. Instead, it is a reasonable proportion of the value of the entire pair or set because that one part is lost.

Note: This recognizes that the value of the whole is greater than the value of individual parts but that the remaining parts still have value as separates.

Example: A chess set is valued at $10,000. A smash and grab theft occurs with the two queens being stolen. The individual pieces remain valuable, but the value is reduced to $3,000. The loss would, therefore, be $7,000.

5. Loss to Parts

The value of a lost or damaged part of property that consists of several parts is the cost to repair or replace only the lost or damaged part.

Example: The shelving unit consists of five shelves. One shelf breaks. The value of this loss is the value of only the one damaged shelf.

How Much We Pay

1. Insurable Interest

The insurance company does not pay more than the named insured's insurable interest in the covered property at the time of loss.

Note: This limitation is very important but applies only to the named insured’s property. However, it would seem to overlook the covered property of others and consignment items. What insurable interest does the named insured have in that property?

2. Deductible

The insurance company pays only the amount of loss that exceeds the deductible amount on the schedule of coverages.

3. Loss Settlement Terms

Subject to other items in this section, the insurance company pays the lesser of the following:

The amount determined under Valuation
The cost to repair, replace or rebuild the property with material of similar kind and quality to the extent possible
The limit that applies to the covered property

Note: This can lead to significant arguments when the insurance company may believe the item can be repaired while the named insured may argue that no repair could return the item to the value prior to the loss.

4. Coinsurance

a. When coinsurance applies to a coverage provided, the insurance company pays only part of the loss if the limit is less than the percentage of the value of the covered property on the schedule of coverages.

b. The following are the three steps to determine the amount of loss to be paid:

Step 1. Multiply the percentage on the schedule of coverages by the covered property’s value at the time of loss.

Step 2. Divide the covered property’s limit by the result determined in step 1.

Note: There is no coinsurance penalty if the result is 1.00 or higher.

Step 3. There is a coinsurance penalty when step 2. is less than 1.00. Subtract the deductible from the amount of loss and then multiply the total amount of loss by the percentage determined in step 2.

The insurance company does not pay more than the amount determined in step 3. or the limit, whichever is less. It does not pay any remaining part of the loss.

c. If there is more than one limit on the schedule of coverages, this procedure applies separately to each limit.

d. If there is only one limit on the schedule of coverages, this procedure applies to the total of all covered property insured under that limit.

e. This coinsurance provision does not apply unless there is a coinsurance percentage entered on the schedule of coverages.

5. Insurance under More Than One Coverage

Two or more coverages in the coverage form may apply to the same loss. In that case, the insurance company does not pay more than the value of the actual claim, loss, or damage sustained.

6. Insurance under More Than One Policy

a. Proportional Share

The named insured may have other coverage subject to the same terms as this coverage form. In that case, this coverage form pays only its share of the covered loss. That share is the proportion that its limit of insurance bears to the limits of insurance of all insurance that covers on the same basis.

b. Excess Amount

There may be other coverage available to pay for the loss other than as described in 7. a. above. In that case, this coverage form pays on an excess basis. It pays only the amount of covered loss that exceeds the amount due from the other coverage, whether collectible or not. Any payment is subject to the limit of insurance that applies.

Loss Payment

1. Loss Payment Options

a. Our Options

The insurance company has the following four loss payment options if a covered loss occurs.

Pay the value of the lost or damaged property
Pay the cost to repair or replace the lost or damaged property
Rebuild, repair, or replace the property with similar property, to the extent possible, within a reasonable period of time
Take any part or all of the property at the agreed on or appraised amount

b. Notice of Our Intent to Rebuild, Repair, or Replace

Within 30 days after the insurance receives a properly completed proof of loss it must notify the named insured that it plans on rebuilding, repairing or replacing the damaged property.

2. Your Losses

a. Adjustment and Payment of Loss

All loss adjustment is between the insurance company and the named insured unless another loss payee named in the policy has an interest in the loss.

b. Conditions for Payment of Loss

Once the amount of the loss is established either through a written agreement between the named insured and the insurance company or from a filed appraisal award, the insurance company must pay within 30 days of receiving a properly prepared proof of loss.

3. Property of Others

a. Adjustment and Payment of Loss to Property of Others

The insurance company has the option to adjust and pay losses that involve property of others either to the named insured acting on the property owner’s behalf or to the property owner.

b. We Do Not Have to Pay You if We Pay the Owner

The insurance company is not obligated to pay the named insured when it pays the property owner. In addition, if the property owner sues the named insured, the company has the option to defend the named insured in that suit.

Other Conditions

1. Appraisal

The insurance company and the insured may not always agree on the value of a covered claim. This condition provides one method to resolve disputed claims.

Either party can request an appraisal to determine the value of a disputed claim. Once requested, the parties have 20 days to obtain their own independent and competent appraisers and give their appraiser's name to the other party. The two appraisers then have 15 days to select a competent, impartial umpire. If they cannot agree on an umpire within that time period, either can request that a judge in the court of record in the state where the property is located appoint one.

The appraisers then determine the claim’s value. They submit any differences to the umpire. Once any two of the three parties agree, the amount of loss is set.

Each party pays its own appraiser. Both parties share the umpire’s cost and other expenses equally.

2. Benefit to Others

The insurance provided does not directly or indirectly benefit any party with custody of the named insured's property.

3. Conformity with Statute

Any condition in this coverage form that conflicts with any applicable law is amended to conform to that law.

4. Estates

a. Your Death

When a named insured that is an individual dies, the person who has custody of that named insured's property is an insured, but only a qualified legal representative is appointed for that property. The named insured’s legal representative becomes an insured once he or she is appointed.

b. Policy Period is not Extended

This coverage does not extend past the policy’s expiration date.

5. Misrepresentation, Concealment, or Fraud

This coverage is void if any insured at any time willfully concealed or misrepresented a material fact that relates to the insurance provided, the property covered, or its interest in the property. It is also void if fraud or false swearing by any insured took place concerning the insurance provided or the property covered.

Note: The named insured must deal with the insurance company honestly. Its rights of recovery may be voided if the insured intentionally misrepresents or conceals a material fact or information. This means the insurance is treated as simply having never existed versus denying a particular claim.

6. Policy Period

Only covered losses that occur during the policy period are paid.

7. Recoveries

Paying the loss does not end the obligations of the named insured and the insurance company toward one another. Additional provisions apply if the insurance company pays a loss and the lost or damaged property is subsequently recovered, or the parties responsible for the loss pay for it.

Either party that recovers property or payment must inform the other. Recovery expenses that either party incurred are reimbursed first. If the named insured keeps the recovered property, it must refund the amount of the claim the insurance company paid unless the company agrees to a different amount. If the claim paid is less than the agreed loss due to applying a deductible or another limitation, any recovery is prorated between the named insured and the insurance company based on the company's respective interest in the loss.

8. Restoration of Limits

Payment of a claim does not reduce the limit available for future claims.

9. Subrogation

The insurance company acquires the named insured's rights of recovery from third parties after it pays a loss. The named insured must help the insurance company secure those rights. The company is not obligated to pay a loss if the named insured hinders or impairs the company's rights of subrogation. However, the named insured can agree in writing to waive recovery rights from others before a loss occurs.

10. Suit against Us

The insurance company cannot be sued by anyone for any coverage until all the terms of the coverage form are met. Suits must be brought within two years after the named insured first knew about a loss. If a state law invalidates this condition, any suit brought must comply with the provisions of that law and begin within the shortest period of time allowed by law.

Note: It is normal for a basic coverage form to be modified by mandatory state-specific endorsements that address issues related to that specific state.

11. Territorial Limits

Covered property must be located in the United States, its territories and possessions, Canada, or Puerto Rico for coverage to apply.

12. Carriers for Hire

The named insured is given special permission to accept shipping documents from transportation companies that limit the carrier’s liability to amounts less than the covered property’s replacement cost or actual cash value.

Note: While this will save the named insured money, it will increase the potential loss for the insurance company because it will be able to only subrogate for the limited carrier’s liability.

IM 7356–SCHEDULE OF COVERAGES–FINE ARTS DEALERS–BLANKET COVERAGE FORM (01 12 changes)

This Schedule of Coverages is used with IM 7351–Fine Arts Dealers Blanket Coverage Form. IM 7356 contains the following information:

Policy Number (01 12 addition)

The 01 12 edition added a space to enter the policy number.

Covered Premises

All occupied and operated premises where coverage is desired must be listed.

Limits

The 01 12 edition added the word “Limit” in several places because Limit is a defined word.

The limits of insurance are entered in the space provided.

Your Premises limit

This is the most paid in a single occurrence for loss to fine arts located at a premises the named insured owns and operates.

Note: This is not a per-premises limit. It is an occurrence limit that applies to the named insured's occupied and operated premises. This limit must be sufficiently high to cover all premises and to meet the coverage form's coinsurance requirements.

Other Premises limit

This is the most paid in a single occurrence for loss to fine arts temporarily on exhibit, at customers' premises, or at other premises to be framed, renovated, packed, or appraised.

Coverage Extensions

The limits on the Schedule of Coverages for the following coverages apply to all covered locations:

Additional Debris Removal Expenses

The limit is $10,000 unless a different limit is entered.

Defense Costs

No entry is required. The 01 12 edition added the words “See Form” in the limits space. The space was blank in the previous edition.

Diminished Value

25% applies unless a different percentage is entered.

Emergency Removal

The number of days is ten unless a different number is entered.

Emergency Removal Expenses

The limit is $1,000 unless a different limit is entered.

Fraud and Deceit

The limit is $1,000 unless a different limit is entered.

Note: Each of these extensions applies. When an entry is not required, the full policy limit applies, subject to any limitations in the coverage extension.

Supplemental Coverages

Each of these coverages provides additional limits of coverage or additional coverage. Required entries vary by type of coverage.

Breakage Coverage

The limit is $1,000 unless a different limit is entered.

Newly Acquired Premises

The limit is $10,000 unless a different limit is entered.

Pollutant Cleanup and Removal

The limit is $10,000 unless a different limit is entered.

Rewards

The limit is $1,000 unless a different limit is entered.

Storage Locations

The limit is $10,000 unless a different limit is entered.

Transit

The limit is $10,000 unless a different limit is entered.

Earthquake Coverage

Check the appropriate box for Coverage Provided or Coverage Not Provided. If the Coverage Provided box is checked, the following entries are required:

Earthquake Limit

This is the most paid for loss to fine arts in any one building or structure.

Earthquake Catastrophe Limit

This is the most paid for loss in any one occurrence.

Flood Coverage

Check the appropriate box for Coverage Provided or Coverage Not Provided. If the Coverage Provided box is checked, the following entries are required:

Flood Limit

This is the most paid for loss to fine arts in any one building or structure.

Flood Catastrophe Limit

This is the most paid for loss in any one occurrence.

Sewer Backup Coverage

Check the appropriate box for Coverage Provided or Coverage Not Provided. If coverage is provided:

Sewer Backup Limit

This is the most paid for loss to fine arts in any one building or structure.

Sewer Backup Catastrophe Limit

This is the most paid for loss in any one occurrence.

Valuation

Valuation is based on one of the following:

Purchase Price Plus Acquisition Expenses
Fair Market Value

Deductible

Deductible amounts must be entered for All Covered Perils

Other deductibles can be entered for the following and supersede the entry for All Covered Perils:

Earthquake Coverage
Flood Coverage
Sewer Backup Coverage

Notes:

The deductible entered applies to all covered locations.

Under Supplemental Coverages, if earthquake, flood, and/or sewer backup coverage applies, a deductible that applies specifically to that selected coverage must be entered. That deductible applies instead of the deductible that applies to all covered locations.

Coinsurance

One of the following coinsurance options must be selected:

Not Applicable
100%
90%
80%
Other Percent (specify)

Additional Information (01 12 change)

This section of the schedule of coverages lists endorsements and forms included when the policy is issued.

The previous edition referred to this section as Optional Coverages and Endorsements.

IM 7351–FINE ARTS DEALER–BLANKET COVERAGE FORM ANALYSIS

This analysis is of the 06 04 edition.

This coverage form is similar to IM 7350–Fine Art Dealers Coverage analyzed above except for seven sections. This analysis addresses only the seven sections that are different.

Definitions

The definition of suit is added. It is used only with property of others in the named insured’s care, custody, or control. It is a judicial proceeding designed to determine if the named insured is liable for loss or damage to such property and the damages owed. Suit also includes arbitration proceedings, but only if the named insured is required to participate in them.

Property Covered

Coverage is broadened to apply beyond the named insured’s premises. Owned property and property of others in the named insured's care, custody, or control is covered when temporarily at other than owned premises. This applies only when property is at that other premises as a part of an exhibition, while at a customers' premises awaiting approval, or at the premises where work such as framing, renovating, packing, or appraising is being performed on the property.

Note: This broader coverage is not automatic. It applies only when there is a limit for it on the schedule of coverages.

Coverage Extensions

Four coverage extensions are added, and one is changed.

Added coverage extensions:

The following are the four added coverage extensions:

2. Defense Costs

a. When suits are brought against the named insured for loss or damage by a covered peril to covered property, the insurance company has the option to defend those suits. It can investigate and settle such claims or suits.

b. The insurance company’s obligation to defend ends once it has paid the limit based on a judgment or written settlement.

c. The named insured is not permitted to interfere with the insurance company's actions or negotiations for a settlement. It also cannot admit liability for a loss, settle a claim, or incur any expense related to the claim unless the insurance company agrees in writing to permit it to do so.

d. The insurance company pays seven specific types of expenses, but only if they relate to investigating or defending a suit. These expenses are not subject to a deductible.

Expenses the insurance company incurs to investigate or defend a suit
Up to $250 per day for the named insured's lost salary as a result of time spent away from the business at the company's request
Expenses the named insured incurs at the company's request
Costs the named insured must pay as a result of any suit the company defends
Interest that accumulates after a judgment is entered until the insurance company pays its part of the judgment
Interest awarded against the named insured before a judgment is entered. However, if the insurance company offers to settle a suit, it does not pay any interest that accumulates after the date of its offer.
Costs of bonds to release attachments. The company is not required to actually furnish the bonds.

3. Diminished Value

Diminished value pays for the reduction in an item’s value that occurs because it was damaged and repaired. The amount paid is based on the difference in an item’s appraised value before a covered loss and the appraised value after the loss and repair/restoration. An independent certified fine arts appraiser must determine the fair market value of the item(s) after the loss. The diminished value is limited to 25% of the property’s total value as detailed in Valuation.

Note: This coverage extension does not increase the limit for covered property or the value of covered property as detailed in Valuation.

4. Emergency Removal Expenses

This coverage extension pays the named insured’s expenses to move covered property away from a covered location threatened by a covered peril. It also pays for storage fees incurred to keep the property at that safe location for up to ten days after the property is first moved. The most paid for such expenses in a single occurrence is $1,000. Coverage ends when the policy expires, even if the items are still at the safe location.

Note: This is additional coverage. As a result, all such expenses paid are in addition to the limit of insurance for this property.

6. Fraud and Deceit

This coverage applies to theft of covered property when the named insured or its agents, consignees, or customers are induced to give property away through either fraud or deceit. The most paid in a single occurrence is $1,000.

Changed extension coverage

Debris Removal

The limit is increased to $10,000 from $5,000.

Supplemental Coverages

Seven supplemental coverages are added, and one is changed.

Added supplemental coverages

The following are the items added:

1. Breakage Coverage

Breakage, marring, or scratching of covered property losses are covered. The most paid in a single occurrence is $1,000.

2. Earthquake Coverage

The insurance company covers direct physical loss to covered property caused by earthquake and volcanic eruption. This does not eliminate the entire earth movement exclusion, though. It applies only to earthquake and volcanic eruption.

Coverage applies only if the appropriate box is checked and a limit entered on the schedule of coverages. This is also subject to a separate deductible.

Note: This coverage does not have a default limit. As a result, coverage applies only if there is a limit on the schedule of coverages. This could be confusing. If earthquake coverage is not provided, the word "none" should be entered in the limits space on the schedule of coverages.

3. Flood Coverage

The insurance company covers direct physical loss to covered property caused by flood. Coverage applies only if the appropriate box is checked and a limit is entered on the schedule of coverages. This is subject to a separate deductible.

Note: This coverage does not have a default limit. As a result, coverage applies only if there is a limit on the schedule of coverages. This could be confusing. If flood coverage is not provided, the word "none" should be entered in the limits space on the schedule of coverages.

4. Newly Acquired Premises

Coverage applies to direct physical loss by a covered peril to covered property at a location the named insured acquires during the policy period. The limit is $10,000 at each location unless there is a different limit on the schedule of coverages. Coverage starts on the date of acquisition and continues for 60 days from that acquisition date until reported to the insurance company or the expiration of this policy, whichever is first. This is not free coverage because the additional premium for the coverage must be paid from the acquisition date.

6. Rewards

An occurrence limit of $1,000 is available to pay for a reward related to covered arson, theft, or vandalism loss. The reward is paid only for information that leads to the conviction of the party or parties who caused the loss. More than one person can receive the award, but the total reward available for a single occurrence is $1,000. There are no limitations as to who can receive the reward or how it is determined who receives it. The limit can be increased.

7. Sewer Backup Coverage

Water damage from a sewer or drain that backs up, causing physical loss to covered property is covered. Water damage from sub-surface water pressure on or leakage through or into a covered building or structure is also covered. However, coverage does not apply unless the appropriate box is checked and a limit is entered on the schedule of coverages. This is subject to a separate deductible.

Note: This coverage does not have a default limit. As a result, coverage applies only if there is a limit on the schedule of coverages. This could be confusing. If sewer backup coverage is not provided, the word "none" should be entered in the limits space on the schedule of coverages.

8. Storage Locations

Covered property in storage at locations not listed on the schedule of coverages is covered for up to $10,000 or a higher limit if entered on the schedule of coverages.

Changed supplemental coverages

Pollutant Cleanup and Removal

The limit is increased to $10,000 from $5,000.

Perils Excluded

Six perils are changed only because of references to Coverage Extensions or Supplemental Coverages that are part of this coverage form but not the IM 7350.

The Earth Movement or Volcanic Eruption exclusion applies except for the coverage that Supplemental Coverages 2. Earthquake Coverage provides.
The Flood exclusion applies except for the coverage that Supplemental Coverages 3. Flood Coverage provides.

The Sewer Backup and Water below the Surface exclusion applies except for the coverage that Supplemental Coverages 7. Sewer Backup Coverage provides.

The Breakage, Marring, and Scratching exclusion applies except for the coverage that Supplemental Coverages 1. Breakage Coverage provides.
The Diminished Value exclusion applies except for the coverage that Coverage Extensions 3. Diminished Value provides.
The Voluntary Parting exclusion applies, except for the coverage that Coverage Extensions 6. Fraud and Deceit provides.

Valuation

The option to replace Purchase Price plus Acquisition Cost with Fair Market Value is added. If fair market value is checked on the schedule of coverages, it replaces purchase price plus acquisition cost as the valuation method. Fair market value is an estimate of what an interested purchaser is willing to pay an interested seller for certain types of property in a free market at the time of loss.

Note: This option can be a double-edged sword. Fine arts can appreciate or depreciate in value based on current taste, interest, and other whims of the marketplace. Regular appraisals are needed to keep the schedule current because the fair market value is based on conditions at the time of loss. The possibility always exists that the named insured may have better coverage using the purchased price plus acquisition cost than the fair market value at a certain point in time.

How Much We Pay

The Earthquake Period provision is added. It states that all earthquake and volcanic activity in a single 168-hour period is considered a single earthquake.

IM 7405–SCHEDULE OF COVERAGES–FINE ARTS FLOATER (08 11 changes)

The changes in the 08 11 edition of this schedule of coverages reflect the changes in the 08 11 edition of the coverage form.

This Schedule of Coverages is used with IM 7400–Fine Arts Floater. IM 7405 contains the following information:

Policy Number (08 11 addition)

The 08 11 edition added a space to enter the policy number.

Covered Premises

Described Premises–Refer to attached Fine Arts Schedule (08 11 word added)

Covered Fine Arts (08 11 addition)

Refer to attached Fine Arts Schedule

Catastrophe Limit (08 11 addition)

The amount the insurance company pays in a single occurrence is entered in the space provided.

Deductible Amount (08 11 addition)

The amount of deductible that applies to loss in a single occurrence is entered in the space provided.

Coverage Extensions (08 11 change)

The limit on the Schedule of Coverages for the following coverage applies to all covered locations:

Emergency Removal

The number of days is 30 days unless a different number of days is entered.

Emergency Removal Expenses

The number of days is 30 days unless a different number of days is entered.

The limit is $1,000 unless a different limit is entered.

Supplemental Coverages (08 11 changes)

Each of these coverages provides additional limits of coverage or additional coverage. Required entries vary by type of coverage.

Newly Acquired Art (08 11 addition)

The limit is 25% of the Catastrophe Limit unless a different percentage is entered.

Off-Premises Coverage (08 11 addition)

The limit is $10,000 unless a different limit is entered.

Property Used to Display or Protect Art (08 11 addition)

The limit is $5,000 unless a different limit is entered.

Transit

The limit is $10,000 unless a different limit is entered.

Note: Newly Purchased Property, Property on Exhibit, and Property off Premises for Framing, Renovating, Packing, or Appraising in the previous edition is not in the 08 11 edition.

Additional Information

This section of the schedule of coverages lists endorsements and forms included when the policy is issued.

IM 7400–FINE ARTS FLOATER ANALYSIS

This analysis is of the 08 11 edition.

This coverage form is similar to IM 7350–Fine Art Dealers Coverage analyzed above except for a new section added and 12 sections. This analysis addresses only the section added and the differences in those 12 sections.

Note: This is a floater, not a Dealers Form. This means it is designed for collections.

Introduction

This section is not part of the IM 7350.

IM 7400 defines two items in this section.

You and your refer to the named insured person or organization on the declarations.
We, us, and our refer to the insurance company that provides coverage.

This section refers to Definitions for a list of words and/or phrases with special meanings.

Note: Definitions section that immediately followed the Agreement in the IM 7350 is at the end of this floater.

Property Covered

Fine Arts coverage applies to the named insured’s fine arts and fine arts of others in its care, custody, or control. It also applies to the named insured’s interest in fine arts that it owns jointly with others. Any jointly owned property is limited to only the interest the named insured has in the items at the time of the loss.

Note: The joint ownership coverage statement leads to some questions. If fine arts of others in the named insured’s care, custody, or control are covered, why isn’t the joint owner’s interest in the shared property similarly covered? Moreover, if so covered, why does this section make the joint ownership statement?

3. We Do Not Cover

This section is added. It explains that coverage does not apply when a loss is based on an ownership dispute. When another party claims it is the property’s rightful owner, this coverage does not respond even if a title search was performed in advance so that the title is considered perfected or secure.

Property Not Covered

One change is made in the property not covered section.

Change in property not covered

Coins, Currency, and Stamps

The Coins and Stamps not covered property is changed to Coins, Currency and Stamps. The wording is also changed to add that coins, bills, currency, notes, and stamps are not covered along with the numismatic of philatelic objects or collection.

Eliminated property not covered

The following property not covered items in the IM 7350 are not listed as such in IM 7400:

Furs
Money and Securities
Vehicles
Waterborne Property

Coverage Extensions

One extension is changed, one is added, and one is eliminated when compared to IM 7350.

Added coverage extension

The following coverage extension is added:

2. Emergency Removal Expenses

This extension is added. It covers the named insured’s expenses to move covered property to keep it from being damaged by a covered peril and to store it while it is off premises. Coverage applies for up to 30 days after the property is first moved, but coverage does not extend past the policy’s expiration date. The most paid in a single occurrence is $1,000. This limit is separate from the limit for the coverage that Property Covered provides.

Changed coverage extension

The following extension is added:

1. Emergency Removal

The number of days covered while off premises is increased from ten to 30 days.

Eliminated coverage extension

The following extension is eliminated:

Debris Removal

Supplemental Coverages

One supplemental coverage is deleted, and three are added.

Added supplemental coverage

The following are added:

1. Newly Acquired Art

Fine arts the named insured acquires during the policy period is covered only while such property is at a premises listed on the schedule of coverages or while the property is in transit to that premises. This coverage expires 90 days following the acquisition until the named insured reports the acquisition to the insurance company or the policy expiration date, whichever is first. Additional premium due is calculated based on the date of acquisition.

The most paid for newly acquired art in a single occurrence is 25% of the Catastrophe Limit on the schedule of coverages. This percentage can be increased.

2. Off Premises Coverage

Fine arts that are temporarily away from a premises on the schedule of coverages are covered. They can be away only at museums, galleries, or other premises the named insured does not own, operate, or occupy, or they can be away at locations for repair, restoration, framing, packing, or appraising.

The most paid in a single occurrence for loss or damage at such locations is $10,000. This limit can be increased.

3. Property used to Display or Protect Art

Glass cases, stands, and similar property used to display fine art objects are covered for direct physical damage caused by a covered peril. Protective devices specifically designed and used to protect such fine arts are also covered.

Coverage is limited to such property while at a premises listed on the schedule of coverages. The most paid in a single occurrence is $5,000 is the most paid in a single occurrence, but the limit can be increased.

Eliminated supplemental coverage

Pollutant Cleanup and Removal is not provided.

Perils Covered

The words “or damage” are added after the words “direct physical loss.”

Perils Excluded

Added exclusions

The following three exclusions are added:

2. a. Birds, Vermin, Rodents, or Insects

Coverage does not apply to loss or damage caused by or that result from any of these.

2. c. Exposure to Light

Loss or damage caused by or that results from exposure to ultraviolet (UV) rays or light is not covered. Examples of such loss or damage are darkening or fading due to the exposure, but loss is not limited to only those.

2. e. Repair, Restoration, Retouching, Framing, or Packing

Loss or damage to covered property during repair, restoration, retouching, framing, or packing is not covered.

Eliminated exclusions

The following exclusions are eliminated:

Earth Movement or Volcanic Eruption
Sewer Backup and Water Below the Surface
Breakage, Marring, and Scratching
Diminished Value
Loss of Use
Pollutants
Processing and Work
Theft from an Unattended Vehicle

Valuation

This section in IM 7400 is completely different from the same section in IM 7350.

1. Fine Arts

a. Total Loss

The value for a total loss to scheduled fine arts is the limit on the schedule of coverages for the damaged item(s).

The value of a total loss to fine arts that Supplemental Coverages 1. Newly Acquired Art insures is the damaged item(s)’ fair market value on the date of loss or damage.

b. Partial Loss

The value of a partial loss to fine arts is based on the cost to restore or repair them to their condition before the loss occurred PLUS the diminished value of fine arts. Diminished value is defined as the difference between its fair market value immediately before the loss and its value after it has been restored and/or repaired.

An independent certified fine arts appraiser selected by the named insured and approved by the insurance company must calculate diminished value. An unusual feature is that when a diminished value claim is asserted, the insurance company does not pay for the cost incurred to determine the value. Instead, both the insurance company and the named insured share that cost. A very important consideration in settling this type of a loss is the actual cost to restore or repair scheduled fine arts, plus the amount of diminished value cannot exceed the scheduled limit for the object on the Fine Arts Schedule. When the damaged item is newly acquired and therefore not yet scheduled, the maximum payment for the cost to restore or repair fine arts plus the diminished value will not exceed the fair market value for that item on the date of loss.

Example: The vase on Jerry’s hearth broke during a fire at his residence. Jerry had it restored and worked with the insurance company to select an acceptable appraiser for both of them in determining the value of his diminished value claim. Jerry’s catastrophic limit of insurance is $200,000.

Scenario 1: The vase’s value was listed as $100,000 on the fine arts schedule. A restoration specialist repaired the vase, and Jerry was quite pleased with the result. The appraiser stated the diminished value was $25,000. The cost to restore the vase was $25,000. The total claim was, therefore, $50,000, which was paid because it did not exceed the limit on the schedule.

Scenario 2: Jerry had purchased the vase two weeks earlier and had not yet scheduled it. Jerry paid $200,000 for the vase, but the appraiser determined that the fair market value of the vase just prior to the loss would have been $150,000. He also determined that the value was diminished by $60,000 after $25,000 had been paid for its restoration. Jerry’s claim was, therefore, $85,000. Because this was unscheduled and newly acquired, the maximum limit is 25% of the catastrophic limit, which equals $50,000. Therefore, Jerry will be paid no more than $50,000.

c. Pair or Set

There are two outcomes if a fine arts loss involves a pair or set where one item in the set or pair is damaged and another (or the others) is not:

If the named insured would like to claim the loss as a total loss, it can do so and relinquish the undamaged parts to the insurance company.
If the named insured would like to keep the undamaged items of the pair or set, file a partial loss claim as described above.

2. Other Property

Covered losses to covered property other than fine arts are valued at the property’s actual cash value at the time of loss. Actual cash value includes a deduction for depreciation.

How Much We Pay

One item is changed, one is added, and one is eliminated.

Added how much we pay

The following is the item added.

4. Catastrophe Limit

The most paid in a single occurrence is the Catastrophe Limit on the schedule of coverages. This is regardless of the number of objects of fine arts, the number of premises, coverages under Coverage Extensions, coverages under Supplemental Coverages, or any combination of these.

Changed how much we pay

The following item is the item changed.

3. Loss Settlement Terms

Item 3.b is identical to the loss settlement term in the IM 7350 except that it applies to all covered property in the IM 7350. The IM 7400 eliminates the requirement that the cost of repair, replace or restore be used to limit the amount paid but only in settling a covered fine arts loss.

Eliminated how much we pay

Coinsurance is eliminated

Loss Payment

Changed loss payment

The word restore is used in place of rebuild.

Other Conditions

Changed other conditions

Restoration of Limits

The IM 7350 does not reduce any limits following a loss. There is no exception. The IM 7400 has two exceptions. The first is that if the insurance company pays a total loss on a scheduled item, the limit is, logically, reduced, and the unearned premium is returned. The second exception is that when a diminished value claim is paid, the limit is also reduced, presumably to diminished value, and the unearned premium is returned to the named insured.

Definitions

Eliminated definitions

The following definitions are not in the IM 7400.

Earth movement
Flood
Pollutant

IM 7407–SCHEDULE OF COVERAGES–FINE ARTS COMPREHENSIVE FORM

This Schedule of Coverages is used with IM 7401–Fine Arts Coverage–Comprehensive Form. IM 7407 contains the following information:

Policy Number

This section has a space to enter the policy number.

Covered Premises

All covered premises must be listed. IM 7404–Additional Premises Schedule–Fine Arts Comprehensive Form is used to list additional premises if IM 7407 does not have enough space for them.

Covered Fine Arts

The box beside one of the following must be checked.

Scheduled Fine Arts

This is the Fine Arts Schedule attached to the policy.

Schedule on File

This is the named insured’s schedule on file with the insurance company.

Optional Coverages

These coverages apply only if the box beside one or both of them is checked.

Off Premises Coverage

There is no default limit in the coverage form. A limit must be entered.

Transit Coverage

There is no default limit in the coverage form. A limit must be entered.

Coverage Extensions

The limits on the Schedule of Coverages for the following coverages apply to all covered locations:

Emergency Removal

The number of days is 365 unless a different limit is entered.

Emergency Removal Expenses

The number of days is 365 unless a different limit is entered.

The limit is $10,000 unless a different limit is entered.

Newly Acquired Premises

The limit is 25% of the Catastrophe Limit unless a different limit is entered.

Supplemental Coverages

Each of these coverages provides additional limits of coverage or additional coverage. Required entries vary by type of coverage.

Art Reference Library

The limit is $5,000 unless a different limit is entered.

Newly Acquired Art

The limit is 25% of the Catastrophe Limit unless a different percentage is entered.

Property Used to Display or Protect Art

The limit is $5,000 unless a different limit is entered.

Rewards Coverage

The limit is $1,000 unless a different limit is entered.

Catastrophe Limit

This is the most paid in a single occurrence for all coverages at all premises.

Deductible

This is the amount deducted from the total amount of loss in a single occurrence.

Additional Information

This section of the schedule of coverages lists endorsements and forms included when the policy is issued.

IM 7401–FINE ARTS COVERAGE–COMPREHENSIVE FORM ANALYSIS

This analysis is of the 09 11 edition.

This coverage form is similar to IM 7350–Fine Art Dealers Coverage analyzed above except for 12 sections changed and two sections added. This analysis addresses only the two sections added and the differences in those 12 sections.

Note: This is a floater, not a Dealers Form and is designed for collections.

Introduction

This section is not in IM 7350.

IM 7401 defines two items in this section.

You and your refer to the named insured person or organization on the declarations.
We, us, and our refer to the insurance company that provides coverage.

This section refers to Definitions for a list of words and/or phrases with special meanings.

Note: Definitions that immediately followed the Agreement in IM 7350 is at the end of this coverage form.

Property Covered

This section completely differs from the corresponding section in IM 7350 because it covers fine arts not considered stock in trade.

Fine Arts coverage applies to fine arts at a premises on the schedule of coverages and described on the fine arts schedule. The fine arts must be fully described on a list provided to the insurance company.

The named insured’s fine arts and fine arts of others in its care, custody, or control are covered, as is the named insured’s interest in fine arts that it owns jointly with others. Any jointly owned property is limited to only the interest the named insured has in the items at the time of the loss.

Coverage does not apply when a loss is based on an ownership dispute. When another party claims it is the property’s rightful owner, this coverage does not respond even if a title search was performed in advance so that the title is considered perfected or secure.

Property Not Covered

One change is made in the property not covered section.

Change in property not covered

Coins, Currency, and Stamps

Eliminated property not covered

The following property not covered items in the IM 7350 are not listed as such in IM 7401:

Furs
Money and Securities
Vehicles
Waterborne Property

Optional Coverages

This section is not in IM 7350, but the coverages are provided. Two Optional Coverages are available.

1. Off Premises Coverage

This coverage applies if the box for Off Premises Coverage on the schedule of coverages is checked.

When fine arts are off premises, fine arts temporarily away from a premises on the schedule of coverages are covered. They can be away only at museums, galleries, or other premises the named insured does not own, operate, or occupy, or they can be away at locations for repair, restoration, framing, packing, or appraising.

The limit entered on the schedule of coverages is the most paid in a single occurrence for loss or damage at such locations. There is no default limit.

2. Transit Coverage

Transit coverage is a supplemental coverage in the IM 7350 for a limit of $5,000. It covers only the fine arts and not the packing material.

This coverage, as provided in the IM 7401, applies only if the box for Transit Coverage on the schedule of coverages is checked.

Covered fine art objects are covered while in transit. Packing material, crates, and similar or related property are also covered when used to ship fine art objects.

The most paid in a single occurrence is the limit for Transit Coverage on the schedule of coverages. There is no default limit.

Coverage Extensions

Two extensions are added, one is changed, and one is eliminated when compared to IM 7350.

Added coverage extension

The following two coverage extensions are added:

Emergency Removal Expenses

This extension is added. It covers the named insured’s expenses to move covered property to keep it from being damaged by a covered peril and to store it while it is off premises. Coverage applies for up to 365 days after the property is first moved, but coverage does not extend past the policy’s expiration date. The most paid in a single occurrence is $10,000. This limit is separate from the limit for the coverage that Property Covered provides.

Newly Acquired Premises

Fine arts at a premises the named insured acquires during the policy period is covered. This coverage expires 90 days following the premises acquisition until the named insured reports the acquisition to the insurance company or the policy expiration date, whichever is first. Additional premium due is calculated based on the date of the premises acquisition. The most paid in a single occurrence is 25% of the Catastrophe Limit on the schedule of coverages. This percentage can be increased.

Changed coverage extension

The following extension is changed:

Emergency Removal

This coverage extension applies for up to 365 days instead of 30 days in IM 7350.

Eliminated coverage extension

Debris Removal in IM 7350 is not in IM 7401.

Supplemental Coverages

Four supplemental coverages are added, and two are eliminated.

Additions to supplemental coverages

The following are added:

1. Art Reference Library

Property that makes up the named insured’s art reference library is covered for direct physical damage. Catalogs, books, reference articles, photographs, and letters are covered property within this coverage. In addition, similar documentation in either hard copy or electronic media is covered.

The most paid for loss or damage to this property in a single occurrence is $5,000. This limit can be increased.

2. Newly Acquired Art

Fine arts the named insured acquires during the policy period is covered only while such property is at a premises listed on the schedule of coverages or at a newly acquired premises covered under the newly acquired premises extension. This coverage expires 90 days following the acquisition until the named insured reports the acquisition to the insurance company or the policy expiration date, whichever is first. Additional premium due is calculated based on the date of acquisition.

The most paid for newly acquired art in a single occurrence is 25% of the Catastrophe Limit on the schedule of coverages. This percentage can be increased.

The limit for this supplemental coverage cannot be combined with the newly acquired premises extension limit.

3. Property used to Display or Protect Art

Glass cases, stands, and similar property used to display fine art objects are covered for direct physical loss or damage from a covered peril. Protective devices specifically designed and used to protect such fine arts are also covered.

Only such property at a premises listed on the schedule of coverages is covered. The loss is limited to $5,000 in a single occurrence for loss or damage to this property. This limit can be increased.

4. Rewards

Eliminated supplemental coverages

The following are the two eliminated:

Pollutant Cleanup and Removal
Transit

Perils Covered

The words “or damage” are added after the words “direct physical loss.”

Perils Excluded

Added exclusions

The following three exclusions are added:

2. a. Birds, Vermin, Rodents, or Insects

Coverage does not apply to loss or damage caused by or that result from any of these.

2. c. Exposure to Light

2. e. Repair, Restoration, Retouching, Framing, or Packing

Loss or damage to covered property during repair, restoration, retouching, framing, or packing is not covered.

Eliminated exclusions

The following exclusions are eliminated:

Earth Movement or Volcanic Eruption
Sewer Backup and Water Below the Surface
Breakage, Marring, and Scratching
Criminal, Fraudulent, Dishonest, or Illegal Acts
Diminished Value
Loss of Use
Missing Property
Pollutants
Processing and Work
Theft from an Unattended Vehicle
Voluntary Parting

Valuation

This section in IM 7401 completely differs from the one in IM 7350.

1. Fine Arts

a. Total Loss

The value for a total loss to scheduled fine arts is the limit on the schedule of coverages for the damaged item(s).

The value of a total loss to fine arts that Supplemental Coverages 1. Newly Acquired Art insures is the damaged item(s)’ fair market value on the date of loss or damage.

b. Partial Loss

Diminished value must be calculated by an independent certified fine arts appraiser selected by the named insured and approved by the insurance company. An unusual feature is that when a diminished value claim is asserted the insurance company does not pay for the cost incurred to determine the value. Instead, both the insurance company and the named insured share that cost. A very important consideration in the settling of this type of a loss is that actual cost to restore or repair scheduled fine arts plus the amount of diminished value cannot exceed the scheduled limit for the object on the Fine Arts Schedule.

When the damaged item is newly acquired and not yet scheduled, the maximum payment for the cost to restore or repair fine arts plus the diminished value will not exceed the fair market value for that item on the date of loss.

Example: The vase on Jerry’s hearth broke during a fire at his residence. Jerry had it restored and worked with the insurance company to select an acceptable appraiser to both of them in determining the value of his diminished value claim. Jerry’s catastrophic limit of insurance is $200,000.

c. Pair or Set

There are two outcomes if a fine arts loss involves a pair or set where one item in the set or pair is damaged and the other (or the others) is not:

If the named insured would like to claim the loss as a total loss, it can do so and relinquish the undamaged parts to the insurance company.
If the named insured would like to keep the undamaged items of the pair or set, file a partial loss claim as described above.

2. Other Property

Covered losses to covered property other than fine arts are valued at the property’s actual cash value at the time of loss. Actual cash value includes a deduction for depreciation.

How Much We Pay

One item is changed, one is added, and one is eliminated.

Added how much we pay

The following is the item added.

Catastrophe Limit

Changed how much we pay

The following item is changed.

Loss Settlement Terms

There is a significant change in this item, so the entire item is discussed, not only the differences.

When a total loss occurs, the insurance company pays the amount determined under Valuation for loss or damage to the covered fine arts, subject to the other paragraphs in this section. There is an interesting exception because if the limit on the schedule of coverages is less than the damaged fine arts’ fair market value at the time of loss, the insurance company pays either the fair market value or 150% of the limit that applies to them, whichever is less. This is a valuable feature because fine arts market values can jump quickly and decline quickly. The good news is that there is no penalty if the market value is less than the limit at the time of the loss.

b. Partial Loss–Scheduled Fine Arts

When the loss is partial, the insurance company pays either the amount determined under Valuation or the limits that apply to them, whichever is less, subject to the other paragraphs in this section.

c. Newly Acquired Art

When the loss is to fine arts covered as Newly Acquired Art, the insurance company pays either the amount determined under Valuation or the limits that apply to them, whichever is less, subject to the other paragraphs in this section. It is important to remember that the limit for newly acquired art is 25% of the catastrophe limit.

d. Other Property

There may be loss or damage to property other than fine arts. In that case, the insurance company pays the least of the following:

The Valuation amount
The cost to restore, repair, or replace the damaged property with similar material, to the extent possible
The applicable limit

Eliminated how much we pay

Coinsurance is eliminated.

Loss Payment

Changed loss payment

The word restore is used in place of rebuild.

Other Conditions

Changed other conditions

Restoration of Limits

The IM 7350 does not reduce any limits following a loss. There is no exception. The IM 7401 has two exceptions. The first is that if the insurance company pays a total loss on a scheduled item, the limit is, logically, reduced, and the unearned premium is returned. The second exception is that when a diminished value claim is paid, the limit is also reduced, presumably to diminished value and unearned premium is returned to the named insured.

Definitions

Eliminated definitions

The following definitions are not in the IM 7401.

Earth movement
Flood
Pollutant

IM 7409–SCHEDULE OF COVERAGES–FINE ARTS BLANKET FORM

This Schedule of Coverages is used with IM 7402–Fine Arts Coverage–Blanket Form. IM 7409 contains the following information:

Policy Number

This section has a space to enter the policy number.

Covered Premises

All covered premises must be listed. IM 7412–Additional Premises Schedule–Fine Arts Blanket Form is used to list additional premises if IM 7407 does not have enough space for them.

Catastrophe Limit

This is the most paid in a single occurrence for all coverages at all premises.

Covered Fine Arts

A limit must be entered for Any One Piece of Art.

Optional Coverages

These coverages apply only if the box beside one or both of them is checked.

Off Premises Coverage

There is no default limit in the coverage form. A limit must be entered.

Transit Coverage

There is no default limit in the coverage form. A limit must be entered.

Coverage Extensions

The limits on the Schedule of Coverages for the following coverages apply to all covered locations:

Emergency Removal

The number of days is 365 unless a different limit is entered.

Emergency Removal Expenses

The number of days is 365 unless a different limit is entered.

The limit is $10,000 unless a different limit is entered.

Newly Acquired Premises
The limit is 25% of the Catastrophe Limit unless a different percentage is entered.

Supplemental Coverages

Each of these coverages provides additional limits of coverage or additional coverage. Required entries vary by type of coverage.

Art Reference Library

The limit is $5,000 unless a different limit is entered.

Newly Acquired Art

The limit is 25% of the Catastrophe Limit unless a different percentage is entered.

Property Used to Display or Protect Art

The limit is $5,000 unless a different limit is entered.

Rewards Coverage

The limit is $1,000 unless a different limit is entered.

Deductible

This is the amount deducted from the total amount of loss in a single occurrence.

Additional Information

This section of the schedule of coverages lists endorsements and forms included when the policy is issued.

IM 7402–FINE ARTS COVERAGE–BLANKET FORM ANALYSIS

This analysis is of the 08 11 edition.

This coverage form is identical to IM 7401–Fine Arts Coverage–Comprehensive Form Analysis, whose differences with IM 7350 were analyzed above. The only difference between the IM 7401 and IM 7402 is that the IM 7402 is on a blanket basis. Therefore, this analysis will review only how the blanket affects the coverage provided.

Property Covered

All reference to scheduled fine arts is eliminated because no items are scheduled.

A limits paragraph is added that states the most paid for damage to an item of art is the Any One Piece of Art Limit on the schedule of coverages. An any one occurrence limit applies based on the per premises limit on the schedule of coverages.

Coverage Extensions

3. Newly Acquired Premises

The reference to items described on the fine arts schedule is eliminated, which expands coverage.

Supplemental Coverages

3. Property used to Display or Protect Art

The limit is increased from $5,000 to $10,000.

VALUATION

This section in IM 7402 has some significant differences from IM 7401.

1. Fine Arts

a. Total Loss

The value of covered fine arts is based on their fair market value at the time of the total loss instead of the scheduled limit on the IM 7401.

b. Partial Loss

The cost to restore or repair plus the amount of diminished value is not more than the covered fine arts’ fair market value on the date that the loss occurs instead of the scheduled limit on the IM 7401.

How Much We Pay

Loss Settlement Terms is streamlined because there is no difference between total or partial loss in settling a fine arts loss. It is based on the valuation or the limit.

Other Conditions

Restoration of Limits differs because the IM 7402 has no exceptions to restoring the limits after a loss. At the same time, the IM 7401 makes exceptions for total loss of an item and diminished value of an item.

ENDORSEMENTS AND SCHEDULES

AAIS has developed the following endorsements and schedule forms for use with the various Fine Arts coverage forms:

IM 7360–Breakage Endorsement (01 12 changes)

(Use with IM 7350 and IM 7351)

This endorsement covers breakage, marring, or scratching of covered property. The 01 12 edition added a space to enter the policy number. It also added quotation marks around the word Limit (“Limit”) because Limit is a defined word.

IM 7361–Off-Site Location Endorsement (01 12 changes)

(Use with IM 7350 and IM 7351)

This endorsement covers insured property at other locations, such as storage facilities, exhibitions, and places that do framing, renovating, packing, or appraisal work on such property. The 01 12 edition added a space to enter the policy number. It also added quotation marks around the word Limit (“Limit”) because Limit is a defined word.

IM 7404–Additional Premises Schedule–Fine Arts Comprehensive Form (08 11 addition)

(Use with IM 7401)

This schedule is used to list and describe the locations of additional premises.

IM 7406–Fine Arts Schedule–Fine Arts Floater (08 11 changes)

(Use with IM 7400)

This schedule lists, describes, and provides a limit on each item of fine arts at described premises. The 08 11 edition added a space to enter the policy number. It also added quotation marks around the word Limit (“Limit”) because Limit is a defined word.

IM 7408–Fine Arts Schedule–Comprehensive Form (08 11 changes)

(Use with IM 7401)

This schedule lists, describes, and provides a limit on each item of scheduled fine arts. The 08 11 edition added a space to enter the policy number. It also added quotation marks around the word Limit (“Limit”) because Limit is a defined word.

IM 7410–Earthquake Limitation Schedule–Fine Arts Coverage (08 11 addition)

(Use with IM 7400, IM 7401, and IM 7402)

This schedule is used with IM 7413–Earthquake Limitation Endorsement to do the following:

State the earthquake limits at the described premises
State the Earthquake Occurrence Limit, Earthquake Catastrophe Limit, and the Earthquake Deductible that applies

IM 7411–Flood Limitation Schedule–Fine Arts Coverage (08 11 addition)

(Use with IM 7400, IM 7401, and IM 7402)

This schedule is used with IM 7414–Flood Limitation Endorsement to do the following:

State the flood limits at the described premises
State the Flood Occurrence Limit, Flood Catastrophe Limit, and the Flood Deductible that applies

IM 7412–Additional Premises Schedule–Fine Arts Blanket Form (08 11 addition)

(Use with IM 7402)

This schedule is used to list and describe the locations of additional premises and state the limit that applies to them.

IM 7413–Earthquake Limitation Endorsement (11 12 addition)

(Use with IM 7400, IM 7401, and IM 7402)

This endorsement restricts coverage. It is used to exclude earth movement coverage and then add back only earthquake. The amount added back is subject to the earthquake schedule of coverages.

IM 7414–Flood Limitation Endorsement (08 11 addition)

(Use with IM 7400, IM 7401, and IM 7402)

This endorsement restricts coverage. It is used to exclude flood coverage and then add back only a limited amount of flood coverage. The amount added back is subject to the flood schedule of coverages.

IM 7415–Sewer Backup Limitation (08 11 addition)

(Use with IM 7400, IM 7401, and IM 7402)

This endorsement restricts coverage. It is used to eliminate sewer backup losses and then add back only a limited amount subject to the limit on the endorsement schedule.

IM 7417–Breakage Exclusion (08 11 addition)

(Use with IM 7400, IM 7401, and IM 7402)

This endorsement restricts coverage. It is used to exclude coverage for breakage, marring, and scratching, but it does provide coverage for the damage a specified peril causes.

IM 7418–Breakage Limitation (08 11 addition)

(Use with IM 7400, IM 7401, and IM 7402)

This endorsement restricts coverage. It completely eliminates coverage for breakage, marring, and scratching without exception and then adds back, but not for more than the limit on the endorsement schedule.

IM 7419–Fraud and Deceit Limitation (08 11 addition)

Use with IM 7400, IM 7401, and IM 7402)

This endorsement restricts coverage. It eliminates coverage for damage caused when property is voluntarily given to another party, even when caused by trickery. It then adds back a limited amount of defined fraud and deceit coverage subject to the limit and deductible on the endorsement schedule.

IM 7420–Storage Location Coverage (08 11 addition)

This endorsement is used to provide insurance on covered property stored at a premises that is not on the schedule of coverages. It has spaces to enter the location(s), address/description of the storage premises, and the limit that applies at each storage location.

IM 7421–Missing Property Exclusion (08 11 addition)

(Use with IM 7401 and IM 7402)

This endorsement restricts coverage. It is used to exclude missing property where the mysterious or unexplained disappearance of the property is the only proof of loss.

IM 7423–Dishonest Acts Exclusion (11 12 addition)

(Use with IM 7400, IM 7401, and IM 7402)

This endorsement restricts coverage. It is used to exclude loss or damage to covered property that criminal, fraudulent, or dishonest acts cause.

IM 74 25–Declared Total Loss Endorsement (08 11 addition)

(Use with IM 7400, IM 7401, and IM 7402)

This endorsement permits a partial loss to be declared a total loss when the cost to repair plus the diminished value of an item exceeds a selected percentage of the item’s value. This provides the named insured with flexibility at the time of loss.

Note: Additional company specific endorsements may be available. Each should be examined to determine how it affects coverage. Forms frequently add requirements for safeguards, such as theft systems and alarms or climate control. Additional requirements may include using glass cases to display property or restricting the time articles may be away from owned and listed locations. Forms that broaden coverage may include broadened territory, processing operations for dealers, and different valuation techniques for unique items or unusual situations.

UNDERWRITING CONSIDERATIONS

Fine arts dealers and galleries usually occupy fixed or permanent locations and are exposed to the common causes of loss that affect them. This is important to remember because most types of fine art are highly susceptible to fire, smoke, and water damage. Other important loss issues that must be addressed include breakage, theft, vandalism, and mysterious disappearance. Fire, smoke, and theft are major loss causes, and fire and theft systems and alarms should be in place when substantial values are involved. Sensitive environmental or atmospheric systems and alarms should be considered in cases where art is susceptible to damage from temperature or humidity changes. Water damage from the discharge of sprinkler systems is another important loss concern. Any object of art especially susceptible to damage by water should be located away from sprinkler systems and their discharge and protected by other means. Fine arts should be kept at or above ground floor level since damage from humidity and water occurs more frequently below grade. Lower building levels may be appropriate for other storage or processing and refurbishing. It is important to keep activities involving heat, including flammable liquids, at a distance from the main inventory. Flammables should be kept in proper containers in a well-ventilated area to prevent build-up of fumes and away from combustible materials that can increase the chance of spontaneous combustion and fire.

This means that commercial property underwriting can be a good first step.

Fine arts also present unique and unusual transit underwriting considerations. One is packing. The degree of care in packing and unpacking objects of art determines how well they fare in transit. Specialized moving and packing operations should be employed when handling and transporting valuable items. Fraudulent acts and trickery can occur, so safeguards should be in place to prevent the unintended delivery of art objects to criminals.

Valuation is one of the significant concerns, so an independent appraisal should be used to determine its appropriate value. The purchase price is important but may not have an actual bearing on the true value or market price of an item of fine art. Appraisals should be updated periodically since changes, such as the death of an artist, may increase or appreciate values of fine arts. On the other hand, a flood of similar items on the market may diminish or depreciate their value.

Off premises is a common exposure that should be addressed. Art located off premises should be documented and recorded and security at those premises should be adequate for the nature of the items and the values involved. Security at off-site exhibits must be evaluated, and appropriate guarantees must be obtained prior to consenting to exhibit. If an item of fine art is given to another party on consignment, a signed consignment agreement should be required to eliminate any questions about its ownership and the legal responsibility of the party that holds the object.

AAIS FINE ARTS COVERAGE FORMS ANALYSIS

INTRODUCTION

ELIGIBILITY

POLICY CONSTRUCTION

SCHEDULES OF COVERAGES

IM 7355–SCHEDULE OF COVERAGES–FINE ARTS DEALERS COVERAGE (01 12 changes)

Policy Number (01 12 addition)

Covered Premises

Premises Limits

Coverage Extensions

Supplemental Coverages

Deductible

Coinsurance

Additional Information (01 12 change)

IM 7350–FINE ARTS DEALERS COVERAGE FORM ANALYSIS

Agreement

Definitions

PROPERTY COVERED

Property Not Covered

Coverage Extensions

Supplemental Coverages

Perils Covered

What Must Be Done In Case Of Loss

Valuation

How Much We Pay

Loss Payment

Other Conditions

IM 7356–SCHEDULE OF COVERAGES–FINE ARTS DEALERS–BLANKET COVERAGE FORM (01 12 changes)

Policy Number (01 12 addition)

Covered Premises

Limits

Coverage Extensions

Supplemental Coverages

Valuation

Deductible

Coinsurance

Additional Information (01 12 change)

IM 7351–FINE ARTS DEALER–BLANKET COVERAGE FORM ANALYSIS

Definitions

Property Covered

Coverage Extensions

Supplemental Coverages

Perils Excluded

Valuation

How Much We Pay

IM 7405–SCHEDULE OF COVERAGES–FINE ARTS FLOATER (08 11 changes)

Policy Number (08 11 addition)

Covered Premises

Covered Fine Arts (08 11 addition)

Catastrophe Limit (08 11 addition)

Deductible Amount (08 11 addition)

Coverage Extensions (08 11 change)

Supplemental Coverages (08 11 changes)

IM 7400–FINE ARTS FLOATER ANALYSIS

Introduction

Property Covered

Property Not Covered

Coverage Extensions

Supplemental Coverages

Perils Covered

Perils Excluded

Valuation

How Much We Pay

Loss Payment

Other Conditions

Definitions

IM 7407–SCHEDULE OF COVERAGES–FINE ARTS COMPREHENSIVE FORM

Policy Number

Covered Premises

Covered Fine Arts

Optional Coverages

Coverage Extensions

Supplemental Coverages

Catastrophe Limit

Deductible

IM 7401–FINE ARTS COVERAGE–COMPREHENSIVE FORM ANALYSIS

Introduction

Property Covered

Property Not Covered

Optional Coverages

IM 7355–SCHEDULE OF COVERAGES–FINE ARTS DEALERS COVERAGE
(01 12 changes)