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From the Chairman
The ruling in a recent Illinois District Court action—Henry F. and Anne Marie Frigon v. Pacific Indemnity Company—may not be the landmark decision claimed by the Wall Street Journal (“This Insurance Case Could Shake Up the Art Market,” February 7, 2007), but it is certainly interesting and noteworthy for artists, collectors, museum officials, and others concerned with insurance coverage and the “bad acts” of those that they work with and encounter in their art-world activities.
In the subject case, the Frigons consigned various artworks to a gallery for sale. The gallery sold the works for prices below the minimums set forth in the consignment agreements and failed to remit the proceeds to the Frigons. Recognizing their unlikely recovery despite a nearly indisputable claim against the gallery, the Frigons chose to file a claim under their “all-risk” masterpiece insurance policy. Pacific Indemnity (a subsidiary of Chubb) denied the claim, and the Frigons sued.
The Court ruled that the Frigons’ loss, caused by the gallery’s sale of the artworks in contravention of the consignment agreements and the failure to remit the sales proceeds, was, in effect, a conversion, or theft, of their property and, as such, a loss covered by their all-risk policy. (Whether the Court would have ruled in the same way had the sales been in compliance with the consignment agreements but the proceeds still not remitted to the owners is an interesting—and important—question. That said, it is not hard to imagine that the Court would still have found that the gallery effected the conversion of the owners’ property.)
The “landmark” nature of this case likely depends on your view of the result—essentially the gallery’s malfeasance was determined to be a risk covered under the owner’s all-risk policy. In fairness, I haven’t tried to determine if there is prior case law in this area, though undoubtedly there is. Thus, whether the Wall Street Journal and some commentators, including Scott Hodes, one of the leading U.S. art lawyers, are correct that this decision could have landmark effects in the art world—including a modification to such all-risk policies—or whether other commentators (notably a few bloggers whose credentials I haven’t evaluated) are right that this decision amounts to nothing new, may not really matter.
Regardless of whether this case is ultimately viewed as having a “landmark” effect, it should remind all of us with a direct interest in the art world and in its daily commercial transactions that we owe each other a “duty of good faith” in connection with those art world transactions. Further, this should be a reminder to check the terms of your insurance policies and remember that they may be there, despite the view of Pacific Indemnity, to protect you against all forms of loss, even where you might not have expected such coverage to exist.
So, if you take nothing else away from the Frigon case, be sure you have a so-called “all-risk” policy with as few exclusions as possible and keep that policy in mind should you suffer a loss from an unexpected cause.
Chairman, ISC Board of Directors
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