LINKS

• Judith Dobrzynski reports on the newly-created ad-hoc advisory committee to the NY Board of Regents which is intended to aide the Board in coming up with a revised deaccessioning policy (see here on the expiration of the deaccessioning "emergency" regulations last October and the outcry that ensued).
• Art Market Monitor interviews Judith Pearson and Lawrence Shindell of ARIS art title insurance (see here on Argo Group's takeover of ARIS last November).
• Donn Zaretsky summarises the most significant changes to the federal gift, estate and generation-skipping taxes for 2011 and 2012. According to Forbes, the increase in the tax exemption to $5m means "that, except for the super wealthy, the tax benefits of giving through an estate plan have been wiped out."
• Gerard Malanga, former Warhol Factory assistant, is set to finally have his day in court in the longstanding dispute with the sculptor John Chamberlain over the silkscreen titled "315 Johns," estimated to be worth $5m. Malanga claims authorship and restitution alleging Chamberlain never acquired title and therefore did not have the right to sell it in 2000. Testimony given by Chamberlain's wife suggests the sculptor knew the work was not a Warhol; the Warhol Authentication Board though declared it an authentic piece in 2000, paving the way for its sale. The court, however, is not bound by the Board's declaration.

Market stands behind title insurance as Argo Group acquires Aris

This blog (among others) has previously reported on how title insurance is "still not broadly accepted" in the art market, especially when compared to its prevalence in real estate transactions. Possibly refuting this view is the recent acquisition of Aris, the sole provider of title insurance for art sales, "by a major publicly traded insurance company, Argo Group, showing confidence in that fledgling market."  Although ARIS title insurance will now carry an A rating and look to a balance sheet with $6.7bn in assets, the concept of art title insurance itself remains fundamentally weird. Evidence suggests that the market had effectively recognized this by showing considerable reluctance to add to transaction costs by purchasing insurance. After all, ARIS is only expected to sell its 1000th policy next year since its inception in 2006, that's roughly a mere 200 policies annually which is peanuts given the size of the New York art market. In a market where the major auction houses and dealers guarantee title --exactly what the insurance policy covers -- there just doesn't appear to be any real need for it (granted it can prove useful in specific, isolated situations e.g. art sales on behalf of bankrupt collectors). It would be an entirely different story if the policy covered forgery/authenticity-related claims but in response to those who were asking precisely that, the answer is no: title insurance does not cover forgery, otherwise translated as "affirmative misrepresentations" (see also here).

Insurer v. Insured

Donn Zaretsky of The Art Law Blog points us in the direction of an insurance case about which party, the insurer or the insured, should get a stolen artwork when it's recovered years after the insurer made a payment in the amount of the policy's limit. Since in this particular instance the valid and enforceable written agreement governing the relationship between the parties had a "plain and unambiguous" provision directly on point, the resolution of the dispute turned out to be a straightforward application of basic contract law principles. Now the really interesting question is in favor of whom would the Massachusetts court have ruled had there been no contractual provision determining who gets what in the unlikely situation that a stolen artwork paid for under an insurance policy is found decades later.

Title insurance "still not broadly accepted"

A New York Times article this weekend on avoiding "legal pitfalls when buying art" (the usual suspects: title and authority to sell an artwork, whether it is subject to I.R.S. liens and/or security interests for unpaid loans and the need for contractual protections) interestingly mentions the market's persistently lukewarm reaction to title insurance. Although hedge funds have shown some interest in purchasing coverage, high-net worth individuals have generally opted not to get insurance. The reason for this seems to be that insurance is not inexpensive (1-5% of the value of the work) and a one-time premium is required to be paid upfront as a lump-sum rather than in installments. Furthermore, coverage is usually limited to title defects and excludes otherwise fraudulent sales.

Donn Zaretsky once referred to "the fundamental weirdness of art title insurance" (insurance traditionally covers future not past events) and the unusual disparity of information between the insured and the insurer. Though I appreciate the legitimate concern regarding the insured's possible exploitation of the insurer, I personally don't think the nature of art title insurance is a major factor accounting for its relative lack of success. In any case, one could interpret the risks covered by title insurance as being future events since breaks in a chain of title technically only become problematic if and when claims are brought in the future against a new owner (and even then, statutes of limitation often bar claims though the bringing of a claim would pose a problem in itself if the buyer wished to resell).