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 What does all mean in an all-risk policy?
Katja Lubina, Art Loss Register Researcher for Historic Claims and Master of Law, discusses a recent US case and its implications for insurers
"What does all mean in an all-risk policy?" was the question that was at the heart of the case of Henry F. and Anne Marie Frigon v. Chubb Group of Insurance Companies' subsidiary Pacific Indemnity Co., Wisconsin. The insurance contract the Frigons took out from Pacific Indemnity - under a so-called Masterpiece Policy - for their art collection covered "all risk of physical loss to valuable articles unless stated otherwise or an exclusion applies" (emphasis in original).
While disputes between collectors and insurance companies over claims and contracts are common, they mainly focus on the value of a work of art either before a loss occurred or after restoration. A recent case that has stirred up the art market is the case of casino mogul Steve Wynn's Picasso and its value just before Mr Wynn accidentally damaged his multi-million dollar painting.
Experts estimate that the ruling of Judge Robert W. Gettleman on behalf of the Frigons will have an even greater impact on the (art) insurance market. As Judge Gettleman remarked himself in the ruling dated January 16, 2007 the facts of the suit were quite simple: The Frigons had collected fine art for a number of years and had formed a close business and personal relationship with the art dealer Richard H. Love from whom they acquired most of their collection. Occasionally, the Frigons would place a painting back with Love's gallery for resale under a consignment agreement.
Between 1997 and 2002 eleven paintings were placed with Love's gallery for sale on consignment for a minimum sale price aggregating $1,600,000. It was in spring 2003 that the Frigons became suspicious that Mr Love might not be operating in accordance with their consignment agreements when instalment payments stopped. Of the agreed minimum price of more than $1.5 million, the Frigons received only $72,500. Henry Frigon demanded that Mr Love to return all his paintings, which was, however, not possible as Mr Love had sold the paintings without informing the Frigons. Even worse was the fact that the gallery had been insolvent for years and had used the monies rather then passing it on to the Frigons.
On May 2, 2003 the Frigons made a loss report to Pacific Indemnity. The latter, however, denied coverage arguing that an economic or financial loss as suffered by the Frigons when Mr Love converted the paintings, is not covered by the policy.
The Frigons went to court seeking a declaration that certain valuable works of art had been lost or converted and were thus covered under the terms of the insurance policy and for a breach of that contract.
Judge Gettleman did not mince his words when he said that an all risk policy also covers economic loss. Looking at the case from the plaintiffs' point of view he stated "As far as the plaintiffs are concerned at this point in time, the conduct of the gallery toward their paintings is no different than had the gallery taken the paintings on consignment and destroyed. The fact that the gallery may owe plaintiffs the value of the lost paintings is no more significant than the fact that a thief would owe the victim of this theft the value of the stolen property (…)".
Since the ruling on February 16, 2007 an all risk policy has become a true all risk policy covering not only theft or damage but including also economic loss. Pacific Indemnity asked the judge to reconsider the order, which was ill-received by Judge Gettleman who denied the motion with reference to one of his colleague's words "Generally, 'this Court's opinions are not intended as mere first drafts, subject to revision and reconsideration at a litigant's pleasure.'1 Such motions are appropriate only to correct manifest errors of law or fact.2 Defendant argues that this court's opinion 'misunderstood certain facts and misapplied the law of conversion.' Defendant is wrong."3
Whether Pacific Indemnity will file for an appeal remains to be seen. Its Masterpiece Policy has, in any event, not yet been changed. What is certain is that all insurance companies offering all risk policies for works of art and other valuables will be closely following further developments in this case and may revise their policies. The following changes are feasible: increases in premiums, requirements to notify insurance companies of planned consignments, and the introduction of another - carefully drafted - exclusion clause.
1 Quaker Alloy Casting Co. v. Gulfco. Industries, Inc., 123 F.R.D. 282, 288 (N.D.Ill.1988)
2 Oto v. Metropolitan Life Insurance Co., 224 F.3d 601 606 (7th Cir.2002)
3 Judge Gettleman further advised defendant to consult: Gettleman, "How to Tell a Judge He Screwed Up," ABA Litigation Magazine, Vol. 32, No. 4 (Summer 2006), which leaves no doubt that Judge Gettleman experienced the motion for reconsideration as falling in the "Judge ___, you ignorant dummy" category.
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