ISO FINE ARTS MUSEUMS COVERAGE FORM ANALYSIS

The Insurance Services Office (ISO) Fine Arts Museums Coverage Form covers objects of fine art that belong to museums and comparable items owned by others that the museum has in its care, custody, or control. Fine arts dealers and non-dealer commercial entities are not eligible to use this coverage form. Examples of fine arts coverage under this form are antiques, etchings, drawings, tapestries, sculptures, porcelains, china, and marble.

POLICY CONSTRUCTION

Fine Arts Museums 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 87–Fine Arts Museums Declarations
IH 00 87–Fine Arts Museums Coverage Form

IH DS 87–FINE ARTS MUSEUMS DECLARATIONS

The advisory Fine Arts Museums 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 87 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. All limits provided are not used to grant coverage but instead limit the amount of coverage available at the particular place where the fine art is at the time of loss.

Property at Your Premises

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

Property at Unnamed Premises

o This limit is used for property off the premises at others’ premises.

Property in Transit
All Covered Property in Any One Occurrence

o 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.

This section has spaces to enter the limits of insurance.

Additionally Covered Property

Additionally covered property that consists of furniture, fixtures, office supplies, machinery, tools, fittings, patterns, dies, molds, models, improvements, and betterments is covered if the box in this section is checked.

Breakage Exclusion

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

Deductible

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

Rates and Premiums

This section has spaces to enter the rate per $100 and the premium that applies.

Special Provisions

Any special provisions are entered in the space provided.

IH 00 87–FINE ARTS MUSEUMS COVERAGE FORM ANALYSIS

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

Introduction

This section encourages the careful reading of 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 that belong to others that are 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 porcelain, china, and marble.

Example: The Triple A Museum of Arts, Antiques, and Artifacts displays arts, antiques, and artifacts it owns as well as similar pieces that others own. These non-owned items are either on loan or temporarily exhibited on its premises. In addition, there is a variety of similar property on the premises to be restored, repaired, or renovated. Moreover, many local and regional artists of all kinds turn to Triple A to display their works of art because it is the only facility of its kind in the city or the surrounding area. For these reasons, the museum is a destination and a magnet for patrons of the arts in a large geographical area. This coverage form insures both owned property and property of others in Triple A's care, custody, or control.

2. Additionally Covered Property

The following types of property are covered only when the box for Additionally Covered Property on the declarations is checked:

Furniture, fixtures, and office supplies
Machinery, tools, and fittings
Patterns, dies, molds, and models
Improvements and betterments

I&B coverage applies only if the named insured does not own the building. Fixtures, alterations, installations, or additions that form a part of the building that the named insured makes at its own expense but cannot legally remove are considered improvements and betterments.

Note: This option could be very good for some because the same causes of loss available to the fine arts are also available to this additionally covered property. However, it is important to review the valuation condition because it is not the same valuation used on a commercial property coverage form.

3. Property Not Covered

The following described property is excluded:

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

Note: The security at these locations is difficult to evaluate.

b. Property that is shipped by mail

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

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

3. Covered Causes of Loss

Covered causes of loss are direct physical loss or damage to covered property except for 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 remove, restore, or replace polluted land or water.

Note: The type of museum and the items it displays could create debris removal problems. Unique situations may require that this limit be increased.

b. Preservation of Property

Covered property may have to be moved from an insured location to keep it from being damaged 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 extracting of pollutants process 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 Triple A employees unload most of the works of art going to another owned location to be repaired and take a break to eat lunch before they finish. They close the roll-down door on the back of the box truck and lock it. When they return and open the door, they find the cargo area door pried open and empty. Coverage applies because, even though the vehicle was unattended at the time of loss, the vehicle was locked, and there was straightforward evidence of a forced break-in.

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 that is discovered as a result of an inventory shortage and there is no explanation as to what happened to the property, similar to the 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 is 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.

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 that result 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. Your Property

The value of the named insured's property is the amount the named insured lists for it in its books and records. An item of property that does not have a recorded value is valued at its fair value on the date a loss occurs. The insurance company and the named insured must negotiate this value.

Note: It is a good idea to reach the agreement on the value prior to a loss rather than afterward.

Example: Triple A is very careful when it values its property. It has each item appraised regularly and then lists that value on its inventory. It provides that list to the insurance company, and there is never any disagreement. However, it was recently given a statue and had not yet been valued when it was stolen.

Triple A’s curator evaluated the stolen statue at $45,000. The claims adjustor also evaluated the stolen statue, but her value was $25,000. The curator and the insurance company had quite a long discussion that included the cost of appraisals and battling experts before the loss was settled for $40,000.

b. Property of Others

The value of this property in the named insured's care, custody, or control is the amount the named insured and the property owner agree to, in writing, prior to any loss. If there is no such agreement for a specific item, it is valued at its fair value is at the time of loss. The insurance company and the named insured must negotiate this value.

Note: The property’s owner does not take part in these negotiations.

c. Additionally Covered Property

If anyone other than the named insured repairs or replaced the damaged property, the insurance company pays nothing.

If the named insured repairs or replaces the property at its expense, the insurance company pays the actual cash value of that property. However, payment is made only if the repair or replacement is made within a reasonable period of time.

Property that is not repaired or replaced is paid on a percentage basis. It starts with the original cost of the items not repaired or replaced. A percentage is then developed by dividing the remaining term of the rental agreement on the date of loss by the period of time from the date the improvement or betterment was installed to the rental agreement’s expiration date.

Note: This valuation is very similar to improvements and betterments coverage. It does not appropriately address additionally covered property that is not improvements and betterments. Such as – what is the percentage paid if the insured is not renting anything?

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 shipped by air within and between these points.

b. 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.

c. Records and Inventory

The named insured is required to maintain accurate records and must maintain them for at least three years after the policy’s expiration date. The following records must be maintained:

An inventory of the covered property.

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

d. 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 the 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 Museums 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 who have 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 museums usually occupy a permanent location and are exposed to the common causes of loss that affect fixed or permanent locations. This is important to keep in mind because most types of fine art are highly susceptible to damage by fire, smoke, and water. They also present unique and unusual transit underwriting considerations and other important loss issues that must be addressed, including breakage, theft, vandalism, and mysterious disappearance.

This coverage form does not exclude any type of earth movement or flood, so a careful review of the loss potential from those causes of loss must be evaluated.

Because of the number of potential causes of loss and the unique nature of the covered property, the management of fine arts museums must be underwritten closely and carefully.

Objects of fine art should always have an independent appraisal to determine the appropriate value. The purchase price is important but may not have an actual bearing on a fine art object's true value or market price. Appraisals should be updated periodically since changes such as the death of an artist may increase the value or cause the value to appreciate. On the other hand, a flood of comparable items on the market may diminish or depreciate the value.

Fire, smoke, and theft are the major loss cause concerns, 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.

Art located off premises should be documented and recorded, and security at those premises should be adequate for the type of item involved and its value. Fraudulent acts and trickery can occur, and there should be safeguards to prevent unintended delivery of art objects to criminals. Security at off-site exhibits must be evaluated, and appropriate guarantees must be obtained before consenting to exhibit. If a fine art 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 at ground floor 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 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.