Consignments Get Trickier

The Steve Winn lawsuit against Lloyds of London is grabbing most of the art-world-meets-the-insurance-world news headlines, but a case with possibly far wider reaching implications was recently decided in Chicago. According to an article (subscribers only) in today's Wall Street Journal, it could affect how galleries are forced to conduct consignments and lead insurance companies to significant new requirements and policy wording changes.

Collectors Henry and Anne Marie Frigon took the art dealer Richard H. Love of Chicago to court because he had, without telling them, sold 11 paintings they had consigned to him for less than the agreed-upon value of the works, and then kept the money for himself to boot. The court had no trouble deciding for the Frigons in this case, but unfortunately Mr. Love did not have the money to pay them what they were owed. So the Frigons next turned the attention of their lawyer to their insurance company, Pacific Indemnity, filing a loss report. Pacific Indemnity denied coverage. The Frigons took the insurance company to court, saying their policy covered "all risk" of physical loss to their property. They didn't have the paintings, they didn't have the money. The judge agreed with the Frigons. From the WSJ [retyped by yours truly...all typos mine]:

Where the potential landmark nature of the case comes into play is that the Frigons and their attorneys claimed--and the judge supported--the notion of an "economic" or "financial" loss that occurred when Mr. Love fraudulently "converted" the status of the consignment agreements without notifying the Frigons or without giving them all but a small amount of whatever proceeds he received from the sales. This definition varies from any traditional notion of "theft" found in most all-risk policies.

Where this get potentially icky for galleries (especially those who work in high-end secondary market consignments) is explained well by Scott Hodes, an attorney representing the insurance company in this case, who also happens to be the attorney for Christo and Jeanne-Claude:

"As a result of interpreting conversion of consigned property as a loss under an 'all risk' policy, insurance carries may have to consider amending these policies to require prenotification of a consignment. Some consignments, in turn, may prose a higher risk to the carrier, thereby requiring a premium increase."

[He adds] "that insurance companies will have to be much more specific in terms of how they define loss in these instances."

God bless my insurance company, they're very helpful and their customer service is exquisite (although I've never had --- knock on wood --- to file a claim), but I can't imagine how much extra paperwork having to prenotify them for each consignment might add up to. Of course, we're not dealing with 1.2 million transactions like the one that lead to the case (not yet, anyway), so it's not likely we'd see any significant impact from such notifications, but --g*ddammit -- I've got enough more than enough such work to do already.

Litigious America...grrrr...