ISO FINE ARTS DEALERS AND GALLERIES COVERAGE FORM ANALYSIS

The Insurance Services Office (ISO) Fine Arts Dealers and Galleries Coverage Form insures the fine arts property of dealers and galleries and property of others in its care, custody, and control. The valuation condition of this form makes it inappropriate for fine arts museums or non-dealer commercial entities. Examples of fine arts covered with this form are antiques, etchings, drawings, tapestries, sculptures, porcelains, china, and marble.

POLICY CONSTRUCTION

Fine Arts Dealers and Galleries Coverage requires at least the following six forms:

IL DS 00–Common Policy Declarations
IL 00 17–Common Policy Conditions

CM DS 02–Commercial Inland Marine Declarations
CM 00 01–Commercial Inland Marine Conditions

IH DS 86–Fine Arts Dealers and Galleries Declarations
IH 00 86–Fine Arts Dealers and Galleries Coverage Form

IH DS 86–FINE ARTS DEALERS AND GALLERIES DECLARATIONS

The advisory Fine Arts Dealers and Galleries Declarations does not have spaces for the named insured, its mailing address, other named insured information, the policy period, or the description of the insured business. That information is on the Common Policy Declarations. IH DS 86 contains the following information:

Insurance Company and Producer Name

The name of the insurance company that provides the coverage and the name of the agent or broker that produces the business are entered in the spaces provided.

Limits of Insurance

This is an unusual section because coverage under this form is not limited to a specific location. Not all limits provided are used to grant coverage but instead to limit the amount of coverage available at the particular place where the fine art is at the time of loss.

Property Held for Sale at Your Premises

Multiple premises addresses can be listed but a limit must be entered beside each premises.

Property Not Held for Sale at Your Premises

This limit is for the fine arts of the named insured at its premises that are not considered stock.

Property at Unnamed Premises in the Care, Custody, or Control of You or Your Employees

The limit is used for consigned property.

Property at Unnamed Premises and Not Included Above

This limit is used for property that is off the premises at other’s premises for exhibition or review.

Property in Transit
All Covered Property in Any One Occurrence

This is the maximum that will be paid in a single occurrence. It is always important to increase this limit when increasing any of the above.

Breakage Exclusion

The breakage exclusion in the coverage form is deleted if the box in this section is checked.

Coinsurance

This section has a space to enter the coinsurance percentage that triggers the coinsurance additional condition, if coinsurance applies.

Deductible

This section has a space to enter the amount of deductible that applies.

Rates and Premiums

The following is entered when coverage is written on a non-reporting basis:

Rates per $100
Premium

The following is entered when coverage is written on a reporting basis:

Deposit Premium
Minimum Premium
Reporting Period
Premium Adjustment Period
Premium Base
Rates per $100
Total Premium

Special Provisions

Any special provisions are entered in the space provided.

IH 00 86–FINE ARTS DEALERS AND GALLERIES COVERAGE FORM ANALYSIS

This analysis is of the 12 13 edition. Changes from the previous edition are in bold print.

INTRODUCTION

This section encourages carefully reading the entire coverage form to determine what is covered, what is not covered, rights, and duties. It defines we, us, and our as the insurance company that provides this insurance coverage. It also defines you and your as the named insured on the declarations. Other words that have special meaning are defined in F. Definitions.

A. Coverage

The insurance company pays for direct physical loss or damage to covered property, but only when that loss is from a covered cause of loss.

1. Covered Property

Covered property is the fine arts owned by the named insured and fine arts belonging to others in the named insured’s care, custody, or control. Examples of covered fine arts are antiques, paintings, etchings, drawings, tapestries, sculptures, and fragile property such as porcelains, china, and marble.

Example: The Gallery on the Alley is an art gallery. It sells its own art objects and art items that belong to others on consignment. It is in a medium-size town in a Midwestern state. It also has property of others in for a variety of repairs and renovation. The Gallery takes considerable pride in its facility and the fact that it is the only operation of its kind within 200 miles. Because of this, many area artists turn to The Gallery to display and sell their work, as this gallery is a destination and a magnet for patrons of the arts in the geographical region. This coverage form insures both owned property and property of others in The Gallery’s care, custody, or control.

2. Property Not Covered

The following property is excluded:

a. Property that has been sold and delivered to customers. This applies even if the property was sold under deferred payment sales agreements.

Note: Coverage for property subject to dual ownership under deferred sales agreements is available under other coverage forms.

AAIS Installment Sales Coverage Form

ISO Installment Sales and Leased Property Coverage Form

b. The named insured’s furniture, fixtures, office supplies, improvements, betterments, machinery, tools, fittings, patterns, dies, molds, or models. This applies only to those items not available for sale.

Note: This type of property is better and more correctly insured under commercial property coverage forms and policies.

Note: While it is unclear if coverage applies to the named insured’s fine arts that are not for sale, it might be suggested that those items would be more appropriately covered under a Commercial Fine Arts Coverage form because of the differences in the valuation conditions under the different forms.

Related Article: ISO Commercial Fine Arts Coverage Form

c. Property that is being exhibited at fairgrounds or at national or international expositions.

Note: This property can be covered under exhibition floaters and coverage forms.

AAIS Exhibition Floater

ISO Exhibition Coverage Form

Example: The town where The Gallery on the Alley is located hosts a national art exposition every fall. The Gallery contributes most of its art to an exhibit that features hometown artists and patrons of the arts. The Gallery’s insurance agent obtains an exhibition coverage form to ensure that The Gallery's art at this exhibit is covered.

d. Equipment, materials, and supplies the named insured uses to conduct its business

Note: This type of property is better and more correctly insured under commercial property coverage forms and policies.

e. Stamps, coins, precious stones, semiprecious stones, and precious metals, as well as any jewelry that is not antique jewelry

Note: There is an extremely fine line between jewelry and antique jewelry. This point must be emphasized to the named insured, and any item of antique jewelry held for sale or on display should be documented and authenticated as an antique. Other jewelry must be covered under jewelers block coverage forms and policies.

ISO Jewelers Block Coverage Form

Jewelers Block Policy

AAIS Jewelry Dealers Coverage

ISO Jewelers Block Coverage Form

f. Automobiles

There is no exception for classic or antique automobiles.

Note: This property is covered under commercial auto coverage forms and policies.

g. Property that is shipped by mail

Note: Coverage should be obtained through the United States Postal Service (USPS).

h. Contraband. Any property that is illegal for the named insured to own or that is in illegal trade or transportation is not covered.

Example: Gallery on the Alley has accepted sculptures from Xavier’s Woodworking to sell on consignment. Xavier’s is very disappointed when a damaged sculpture is not covered when the claims adjuster discovered it had been sculpted from wood illegally harvested and banned in the United States.

3. Covered Causes of Loss

Covered causes of loss are direct physical loss or damage to covered property apart from causes of loss that are listed in the exclusions section.

4. Additional Coverages

Some of the following additional coverages are also additional amounts of insurance.

a. Debris Removal

A property damage loss usually creates debris that must be removed. The insurance company pays the cost of removing the debris of a covered loss. The expenses must be reported to the insurance company in writing within 180 days of the date of loss. The most paid is 25% of the sum of the following:

The amount that is paid for direct physical loss or damage to covered property
The deductible that applies to such direct physical loss or damage

Payments under this Additional Coverage do not increase the limit of insurance that applies. However, the insurance company pays an additional $5,000 per occurrence when the direct physical loss or damage combined with the debris removal expense exceeds the limit of insurance or when the debris removal expense is more than the amount payable under the above-described 25% limitation.

This coverage does not apply to costs to extract pollutants from land or water or to remove, restore, or replace polluted land or water.

b. Preservation of Property

Covered property may have to be moved from an insured location to prevent damage by a covered cause of loss. In that case, the insurance company pays for any direct loss or damage such property sustains during the move. In addition, coverage applies at the location where the property is stored for up to 30 days after the date it was moved there.

The limit for this additional coverage does not increase the limit of insurance.

Notes: There are several important points to consider:

The only property insured is covered property at a location listed on the declarations. Property eligible for coverage moved from a location that is not covered does not create coverage.
The potential loss or damage from which the property is being protected must be a covered cause of loss.

Covered property is covered for ANY cause of loss while it is being moved to and from (and while at) the "safe" location.

The property removed must be moved back to the covered location or the temporary location must be added to the policy within 30 days from the date of the move. Otherwise, all coverage ends after 30 days.

c. Pollutant Clean Up and Removal

The insurance company pays to clean up pollutants caused by or resulting from a covered cause of loss that occurs during the policy period. The most paid is $10,000 per premises as an aggregate amount during each separate 12-month policy period. The expenses are paid only if they are reported to the insurance company in writing within 180 days of the date of loss.

This coverage does not apply to costs to evaluate the presence or effects of pollutants. However, it does pay for testing that is part of the process of extracting pollutants from either land or water.

This limit is an additional amount of insurance.

B. Exclusions

1. Primary Exclusions

The first group of exclusions applies whether the loss event results in widespread damage or affects a significant geographical area and is essentially absolute. Subject to specific exceptions, 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 that results from any of these events.

a. Governmental Action

This exclusion applies to the legal and authorized seizure or destruction of property by a government entity’s order. There is one exception. Loss or damage that is caused when the governmental entity orders property to be destroyed is covered if used as a method to prevent a fire from spreading is covered. However, this exception applies only if the fire being contained would have been a covered fire under this coverage form.

b. Nuclear Hazard

Nuclear reaction, radiation, or radioactive contamination is not covered. There is an exception. If a fire results from the nuclear reaction, radiation, or radioactive contamination there is coverage for the direct loss or damage caused by that fire.

c. War and Military Action

This exclusion lists three specific warlike activities.

War. This can be a declared war, an undeclared war, or a civil war.
Military force of a warlike nature. These activities must utilize military personnel or agents of a government or other type of authority. Actions taken to prevent any of these activities are also considered war.
Insurrection, rebellion, revolution, and attempts to usurp power. Any action a government takes to respond to such actions is also considered 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 resulting from any of these events.

a. Theft from an unattended vehicle

When the loss is due to theft from an unattended vehicle, there is no coverage. There are two exceptions.

If the vehicle's doors, windows, and compartments were closed and locked at the time of the theft AND there are visible signs of forced entry, coverage does apply.
If covered property is in a carrier for hire’s care, custody, or control.

Example: Two Gallery on the Alley employees unload most of the works of art going into temporary storage at an unnamed location because of remodeling work at the gallery and take a break to eat lunch before finishing. They inadvertently forget to lock the pull-down door on the box truck. When they return and roll the door up, they find the cargo area empty and the remaining artwork gone. The vehicle does not have a single mark on it to show that a forced break-in occurred. As a result, coverage does not apply.

b. Delay, loss of use, and loss of market

These are consequential or indirect losses that develop because of a direct loss or damage.

c. Unexplained disappearance

When covered property is gone, and there is no obvious cause or explanation of what happened to it.

d. Shortage found upon taking inventory

Any loss discovered as a result of an inventory shortage, and there is no explanation as to what happened to the property, similar to unexplained disappearance. This is sometimes referred to as "inventory shrinkage."

e. Dishonest or criminal acts (12 13 changes)

These are any dishonest or criminal acts the named insured, its partners, employees, temporary employees, leased workers, officers, directors, trustees, authorized representatives, or members and managers of a limited liability company commit. This also includes theft.

Such acts committed by anyone with an interest in the property, their employees, temporary employees, leased workers, or authorized representatives who act alone or who act in collusion with other parties or with each other are also excluded. This exclusion also applies whether or not the acts take place during regular working hours.

This exclusion does not apply to acts of destruction by the named insured’s employees, temporary employees, leased workers, or authorized representatives. However, there is no coverage for theft by the named insured’s employees, temporary employees, leased workers, or authorized representatives.

The 12 13 edition removed the part of the exclusion in the previous edition that applied to dishonest or criminal acts committed by anyone entrusted with the property for any reason.

f. Breakage

If art glass windows, statuary, glassware, bric-a-brac, marble, porcelain, and similar fragile property break, there is no coverage for any loss or damage related to its breaking.

There are two exceptions.

If fire, lightning, explosion, windstorm, earthquake, flood, vandalism, aircraft, rioters, strikers, theft, attempted theft, or accident to the vehicle that transports the property causes the breakage, coverage does apply but only if that cause of loss would be covered under this form.
The entire exclusion is void if there is a checkmark in the box on the declarations deleting this exclusion.

g. Repairing, restoring, or retouching

Loss or damage to property that results from ANY efforts to repair, restore, or retouch it.

Example: Double M’s President’s wife notices a small smudge on a painting and attempts to remove it. Her repair attempt creates a hole in the canvas. This damage is excluded.

h. Marring, scratching, chipping or denting

Loss or damage to covered property caused by or that results from marring, scratching, chipping, or denting. There is an exception. If such loss or damage is caused directly by fire, lightning, explosion, windstorm, earthquake, flood, vandalism, aircraft, rioters, strikers, theft, attempted theft, or accidents to the conveyance that transports the property coverage applies. These listed causes of loss apply only if this coverage form insures them.

i. Voluntary parting

The named insured or anyone else entrusted with the property being tricked or deceived into giving that property away.

j. Theft (12 13 addition)

Theft by any person the named insured entrusts covered property to for any reason, whether they act alone or in collusion with any other party. This exclusion applies 24 hours a day/7 days a week. There is one exception. Covered property in a carrier for hire’s care, custody, or control is not subject to this exclusion.

3. Other Exclusions

This group of exclusions applies to loss or damage caused by or resulting from any of the following loss events. In every case, if loss or damage by a covered cause of loss occurs because of one of these excluded events, coverage applies to the loss or damage the resulting covered cause of loss causes. The insurance company does not pay for any loss or damage caused by or that results from any of these events.

a. Wear and tear

This is loss or damage due to wear and tear.

Note: Wear and tear is damage that occurs naturally because of aging or normal wear.

b. Any quality in the property

These are any qualities in the property that cause it to destroy or damage itself.

Note: An example is a loss or damage caused by hidden or latent defects in the property.

c. Insects, vermin, or rodents

This is loss or damage to covered property caused by or that results from insects, vermin, or rodents.

Note: Some examples are damage from mice, rats, cockroaches, squirrels, beavers, spiders, ants, centipedes, and ticks. Each is characterized by destructive habits that cause damage, such as gnawing and nibbling.

C. Limits of Insurance

The most the insurance company pays for loss or damage in a single occurrence is the limit of insurance on the declarations for the applicable coverage.

D. Deductible

The insurance company does not pay for loss or damage until the amount of the adjusted loss or damage (before capping with the appropriate limit of insurance) exceeds the deductible on the declarations. It then pays the amount of the adjusted loss or damage that exceeds the deductible up to the applicable limit of insurance.

E. Additional Conditions

1. Valuation

The following replaces the Valuation General Condition in the Commercial Inland Marine Conditions:

a. Unsold property is valued at the lesser of the price the named insured paid to purchase the item plus the cost the named insured paid to acquire it or the inventory value of the object.

The amount determined above is then added to whatever costs the named insured incurred in restoring or repairing the object.

Example: Two Gallery was so excited to discover an original sculpture from a renowned local artist. It cost $60,000 to purchase it and $15,000 in acquisition costs. It was not in the best shape, so Two Gallery spent $25,000 on restoring it. The initial appraisal at the time was $250,000, so it was considered money well spent. Unfortunately, just as the repairs were completed and the sculpture was ready for sale, a book was published about the artist that ruined the market for his work. Two Gallery was so disappointed and, after three years of no interest, gradually reduced the value of the item to $60,000 in its inventory. If a loss would occur, the maximum that would be paid is $60,000 PLUS the $25,000 = $85,000.

b. Sold property lost or damaged before it had been delivered to the purchaser is valued at its net selling price. This means that discounts that would have been offered for timely payment are subtracted from the cost, as are packing and other costs that were not incurred.

c. Property of others that is in the named insured's care, custody, or control is valued at the lowest value for which the item would be sold based on an agreed of the parties.

Regardless of the valuation method used, the value of property that sustained loss or damage must be determined at the time of the loss or damage.

2. Pairs, Sets, or Parts

The following replaces the Pairs, Sets, or Parts Loss Condition in the Commercial Inland Marine Conditions.

There are three options if a covered cause of loss results in loss or damage to any item that makes up part of a pair or set:

a. The first option is 100% at the named insured’s request because it requires that the ownership of the remaining part of the pair or set must be turned over to the insurance company. In return for a payment of the full value of the pair or set, all remaining items of the pair or set are given to the insurance company.

If option a. is not selected, the insurance company will do one of the following, at its option:

b. Repair or replace any damaged part to restore the pair or set to the value that existed before the loss or damage.

c. Pay the difference between the value of the pair or set before the loss or damage and its value after the loss or damage.

3. Other Conditions

The following conditions apply in addition to the Commercial Inland Marine Conditions and the Common Policy Conditions:

a. Coverage Territory

The coverage territory is the United States of America, its territories and possessions, Puerto Rico, and Canada. This includes property that is shipped by air within and between these points.

b. Coinsurance

This condition applies if there is a coinsurance percentage on the declarations.

The insurance company does not pay the full amount of any loss or damage if the value of covered property at the time of loss or damage multiplied by the coinsurance percentage is more than the limit of insurance for all covered property at that location. In such cases, the amount the company pays is determined as follows:

Step 1. Multiply the value of the covered property at the time and location of the loss or damage by the coinsurance percentage on the declarations.

Step 2. Divide the limit of insurance for covered property at the location where the loss or damage occurred by Step 1.

Step 3. Multiply the total amount of loss or damage at the loss location by Step 2. before applying the deductible (if any).

Step 4. Subtract the amount of deductible from Step 3.

The insurance company pays the lesser of Step 4. or the limit of insurance. Any amount that remains must be paid by other insurance, or the named insured must pay it from its own funds.

c. Packing and Unpacking

The named insured agrees to have competent packers pack and unpack covered property.

Note: If an incompetent packer is allowed to pack or unpack covered property and a loss results, the loss is not covered.

d. Records and Inventory

The named insured is required to maintain accurate records for the insured business and must maintain them for at least three years after the policy’s expiration date. At least once a year, the named insured is required to perform a physical inventory of its business stock. The following records must be maintained:

Records of all items that are acquired, regardless of how they are acquired
Records of cash or credit sales
Records of property of others that is in the named insured's care, custody, or control
Records of property that has been sent to others for any reason

e. Protective Safeguards

If the named insured states in the application that a protective safeguard is in place at a premises, that protective safeguard must be maintained and operational whenever the premises is not open for business.

If that safeguard is not operational when the premises is closed, all coverage at the premises is suspended until it becomes operational again.

Note: This is a very important warranty that removes all coverage, regardless of cause of loss, when the protective safeguard goes down. There are no exceptions.

F. Definitions

There is one definition.

Pollutants

These are any solid, liquid, gaseous, or thermal irritant or contaminant. Pollutants also include smoke, vapor, soot, fumes, acids, alkalis, chemicals, or waste. Waste is any material intended for recycling, reconditioning, or reclamation.

ENDORSEMENTS

ISO has not developed any specific endorsements for exclusive use with the Fine Arts Dealers and Galleries Coverage Form. ISO has developed three other endorsements that can be used to respond to specific situations.

IH 99 08–Value Reporting Form

This endorsement is used to convert the coverage from a non-reporting to a reporting basis. Reports of value can be provided on a daily, weekly, monthly, quarterly, or policy year basis.

IH 99 19–Additional Covered Property

This endorsement is used to include coverage for types of property ordinarily excluded.

IH 99 20–Additional Property Not Covered

This endorsement is used to exclude certain types of property the coverage form insures.

IH 99 22–Loss Payable

Loss payees with insurable interests in covered property are listed on this endorsement along with the property in which they have that interest.

Note: No commitment is made to notify them of any cancellation.

UNDERWRITING CONSIDERATIONS

Fine arts dealers and galleries usually occupy a permanent location and are exposed to the common causes of loss that affect fixed or permanent locations. This is important to remember because most types of fine art are highly susceptible to fire, smoke, and water damage. They also present unique and unusual transit underwriting considerations, and other important loss issues that must be addressed include breakage, theft, vandalism, and mysterious disappearance. Because of the number of potential causes of loss and the unique nature of the property covered, the management of fine arts dealers and galleries must be underwritten closely and carefully.

The valuation condition is unique in this form. It is the purchase price plus acquisition costs plus repair or restoration. This means that even if the appraised value is significantly higher, it is not paid. The named insured gains no more than what it actually expended on the item. However, if the item is devalued and listed on the inventory at a devalued price, the most paid is the inventory value plus the repair cost. 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 changes in temperature or humidity. Water damage from sprinkler systems discharging is another important loss concern. Any fine art object especially susceptible to damage by water should be located away from sprinkler systems (and their discharge) and protected in some unique way.

The degree of care in packing and unpacking objects of art, in large part, determines how well they fare in transit. Specialized moving and packing operations should be employed when handling and transporting valuable items.

The inventory listing is vital because there is no schedule attached to this coverage form. The inventory provides, at a time and place, the stock in trade available. The inventory lists the available objects along with a price for the object. This inventory must be updated at least annually.

It is important to understand where art is located off premises, the security at those premises and the agreements between parties as to legal liability in case of loss. Fraudulent acts and trickery can occur, and safeguards should be in place to prevent the unintended delivery of art objects to criminals. If an object is given to another party on consignment, a signed consignment agreement should be required to eliminate any questions of its ownership and that party’s legal responsibility for it.

Fine arts should be kept on grade level or higher because damage from humidity and water occurs more frequently below grade. Lower levels of a building may be appropriate for other storage or processing and refurbishing operations. It is important to keep activities that involve heat and using flammable liquids well away from the main inventory. Flammables should be kept in proper containers in a well-ventilated area to prevent the build-up of fumes and away from combustible materials that can increase the chance of spontaneous combustion and fire.