Many businesses decorate their workplace with paintings, statues, Persian rugs, tapestries, and other artwork. In commercial insurance, these items are called fine arts. To protect your business against the loss of valuable items, you'll need to purchase fine arts coverage.
Deficiencies of Property Policies
Artwork, collectibles, and similar items are considered business personal property (BPP) under most commercial property policies, including the standard ISO form. BPP qualifies as Covered Property if it is located in or on a building (or within 100 feet of it) at the described premises. While fine arts are covered, they are subject to exclusions and limitations in the policy.
A major problem with commercial property policies is the manner in which objects of art are valued. In the ISO form, the replacement cost coverage option does not apply to works of art, antiques or rare articles. If works of art are damaged, losses are calculated according to the actual cash value of the damaged property. Fine arts are not valued on their replacement cost even if you have elected to insure your business personal property on a replacement cost basis.
Works of art should be insured for an agreed value determined by a competent appraiser, not their actual cash value.
Many objects of art are delicate. They are easily damaged by heat, moisture, and other perils like those listed below. All of these perils are excluded in the standard commercial property policy.
- Changes or extremes in temperature
- Dampness or dryness of the atmosphere
- Marring or scratching
- Nesting or infestation of insects, birds or rodents
- Continuous seepage of water or moisture over 14 days or more
The standard ISO form also contains a breakage limitation that applies to fragile items like statuary, marbles, and chinaware. Breakage of such property is excluded unless it results from a named peril or building glass breakage.
Fine Arts Coverage
To adequately protect your business against losses to your valuable artwork, you'll need to purchase fine arts insurance. This coverage may be added to a commercial property policy by a separate form or endorsement (often called a floater). The following discussion concerns coverage intended for businesses that own or collect art but are not in the fine arts business. Museums, art dealers, art restoration businesses, and similar operations require specialized coverage.
Fine arts insurance should cover artwork on an agreed value basis. When you buy fine arts insurance, you submit a list of the property you want to insure and designate the value of each item. You and your insurer agree on the value of each item at the beginning of the policy period. If a piece of artwork is lost, damaged or stolen, the loss will be calculated based on the agreed-upon value.
When purchasing fine arts coverage, make sure that the values you submit to your insurer are accurate. If you aren't certain about the value of an item, have the property evaluated by a reputable appraiser. Your policy should include a list of each insured item and its agreed value. If an item is destroyed or stolen, your insurer will not pay more than its agreed value minus the applicable deductible.
Fine arts insurance may be written on either a scheduled form or blanket form. A scheduled form covers each item listed in the schedule. This type of form is a logical choice if your business seldom buys new artwork. If you add to your collection frequently, you should consider purchasing blanket coverage. The latter covers any property that meets the definition of "fine arts" in the policy. Insured items need not be listed individually.
Many fine arts forms include property that's owned by someone else but in your custody. An example is a painting owned by an artist but displayed on a wall in your restaurant. If the artwork is scheduled on your policy (if you are insured under a scheduled form) or meets the definition of fine arts (if you are insured under a blanket form), the painting should qualify as covered property.
Check your policy before moving artwork off-site! Fine arts forms often afford limited coverage for property in transit or situated at a location you don't own.
Most scheduled forms provide some coverage for fine arts you acquire during the policy period. The limit is usually low, and the coverage is short-term (often 30 days). If you purchase new artwork, you'll need to contact your insurer promptly to have the item added to your policy.
Fine arts forms contain fewer exclusions than a standard property policy. Most cover damage caused by any risk not specifically excluded. Here are some common exclusions:
- War, nuclear hazard, government action (such as the seizure)
- Dishonesty committed by you, a company principal or your employees
- Mysterious disappearance
- Voluntary parting with the property by trick or false pretense
- Wear and tear
- Repairing, restoring or retouching
- Flood and earthquake
- Breakage of fragile items unless the damage is caused by a named peril
The breakage exclusion is similar to the one found in the property policy. Some insurers will eliminate it for an additional premium. They may also offer coverage for flood and earthquake.
Extended Coverage Endorsements
Some insurers offer fine arts insurance as part of an "extended coverage" endorsement. An example of such an endorsement is the "Select Extension" offered by Markel. When provided in this manner, fine arts coverage can be quite economical. However, the limit is usually low, such as $10,000 or $25,000.
Another problem with extended coverage endorsements is the way they value fine arts. Some pay losses based on the cost to repair damaged artwork, the cost replace it, or its actual cash value, whichever is the least. Thirdly, some endorsements don't remove the problematic exclusions (like heat and moisture) outlined above.