Wednesday, February 07, 2007

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...

Labels: consignments, lawsuit


Anonymous Ethan said...

Well, god knows I'm no lawyer... but it seems that the additional paperwork would be done by the owners with their insurance company, not the gallerist. Note that the Frigons sued their own insurance company, not the gallery's.

2/07/2007 10:40:00 AM  
Blogger Edward_ said...

In this particular instance, perhaps, but galleries consign work to third parties (e.g., other dealers, museums, etc.) all the time and their insurance companies aren't necessarily notified per instance. This ruling could change that. It's not clear yet, though, so there's no reason to do much more than watch with interest.

2/07/2007 10:56:00 AM  
Blogger Blogger for peace said...

You can get free access to the Wall Street Journal with a netpass from:

This has been in several blogs lately.

2/07/2007 11:28:00 AM  
Blogger Edward_ said...

cool...thanks b4p. ;-)

2/07/2007 11:40:00 AM  
Anonymous Anonymous said...


Would love to know the name of your fantastic insurance company.

Many thanks!

2/07/2007 01:09:00 PM  
Blogger Edward_ said...

Would love to know the name of your fantastic insurance company.

Shoot me an email. edward [at]

Keep in mind, though, that it's probably easy to be fantastic when the client has never filed a claim. I just appreciate how helpful they are when I call.

2/07/2007 01:28:00 PM  
Anonymous Anonymous said...

Well, maybe you all should know that consignment agreements are governed differently in each state.

In Florida, each work must have attached to the back or in a label/list in the wall the consignment agreement otherwise if the gallery goes under or somebody comes with a claim they could take any work not labeled with it. This way you do not transfer title until you are paid.

Banks and insurance companies lobbied for this law.


2/08/2007 12:56:00 AM  
Blogger king said...

As the population has gotten older, the need for health insurance has increased. Despite possible changes in the regulatory environment, healthcare is expected to continue its rapid expansion.

3/19/2008 01:27:00 AM  

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