AAIS Museum Collection Coverage

142.27

AAIS MUSEUM COLLECTION COVERAGE FORM ANALYSIS

(February 2018)

 

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INTRODUCTION

The American Association of Insurance Services (AAIS) Museum Collection Coverage Forms insure fine art objects that are part of the named insured’s museum collection. Coverage applies on a blanket basis on the named insured’s owned property, property of others on loan to the named insured, property of others in the named insured’s care, custody, or control pending its approval or acceptance, and property that the named insured owns jointly with others. This coverage form includes a number of Coverage Extensions and Supplemental Coverages that are unique to the Museum class of business.

AAIS has developed two Museum Collection Coverage Forms. Each has its own corresponding schedule of coverages. This article analyzes IM 8100–Museum Collection Coverage Analysis first and then analyzes the differences between it and IM 8101– Museum Collection Coverage–Fine Art Comprehensive Form.

ELIGIBILITY

Museums that collect fine arts and historic, rare, or scientific items that have artistic or cultural merit are eligible. An eligible museum can be a for-profit or not-for-profit institution.

Museums that are mainly scientific and non-collecting or that are art galleries with an emphasis on exhibits and sales are not eligible.

POLICY CONSTRUCTION

AAIS Museum coverage requires at least these four forms:

Related Article: CL 0100–AAIS Commercial Lines Common Policy Conditions

 

SCHEDULES OF COVERAGES

IM 8105–SCHEDULE OF COVERAGES–MUSEUM COLLECTION COVERAGE

This Schedule of Coverages is used with IM 8100–Museum Collection Coverage. IM 8105 contains the following information:

Policy Number

IM 8105 has a space to enter the policy number.

Covered Premises

All covered locations’ premises number(s), a description of each premises, and the limit that applies to the premises must be listed in the spaces provided.

There is also a space to enter the Occurrence Limit that applies to all locations in a single occurrence. Unlisted locations are not covered.

Note: The Occurrence Limit is similar to a Catastrophe Limit in that it caps the payment when a single event damages multiple premises. It consists of all premises limits plus all coverage extensions and supplemental coverages. Whenever any of these limits are increased, the occurrence limit should also be increased.

Coverage Extensions

The limits on the Schedule of Coverages for the following coverages apply to all covered locations:

The limit is $5,000 unless a different limit is entered.

There is no limit in the coverage form and there is no provision to enter a limit on the schedule of coverages. The entry in the Limit column is “See Form.” As a result, policy limits apply but defense costs reduce the amount available to pay losses.

Supplemental Coverages

Each of these coverages provides additional limits of coverage or additional coverage. Required entries vary by type of coverage.

The limit is $25,000 unless a different limit is entered.

The limit is $10,000 unless a different limit is entered.

The limit is $5,000 unless a different limit is entered.

The limit is $50,000 unless a different limit is entered.

The limit is $50,000 unless a different limit is entered.

Deductible Amount

A deductible amount must be entered in the space provided.

Additional Information

This section of the schedule of coverages lists endorsements and forms included when the policy is issued.

IM 8100–MUSEUM COLLECTION COVERAGE

This analysis is of the 10 12 edition which is the initial edition.

Introduction

The terms "you" and "your" are the party(ies) identified on the declarations as the insured. "We", "us," and "our" is the insurance company that provides coverage. These are the only two definitions in this introduction. However, there are many other defined terms used in this coverage form. The other terms can be found in the Definitions Section at the end of the coverage form. It is very important to review these definitions because of how they can broaden or restrict coverage.

Agreement

This section states that the insurance company provides the insurance described in the coverage form based on entries on the schedule of coverages in return for the named insured paying the premium. This is subject to all the coverage form's terms, conditions, endorsements, and definitions.

Property Covered

The insurance company covers the following property, subject to certain exclusions or limitations.

1. Coverage

Direct physical loss or damage to the named insured’s museum collection property when caused by a covered peril is covered. The property covered consists of fine arts or rare objects but only when considered to have artistic, historic, cultural, and scientific significance.  There are five types of property covered based on ownership of the property. The five types are:

Note: The policy does not say who has to tell the museum to insure the property but one reading could be that as part of the loan agreement the owner of the property instructs that the museum must provide the insurance.

2. Coverage Limitation

The property above is covered only while at a location that is listed on the schedule of coverages.

3. Limits

The most paid for loss or damage to covered property at a covered premises in a single occurrence is the limit for that location on the schedule of coverages.

The Occurrence Limit on the schedule of coverages is the most paid in a single occurrence, whether or not the loss or occurrence involves any of the following:

Note: Using the “occurrence limit” twice could be confusing. It might be clearer to use “Catastrophe Limit” instead.

 

Example: James Armor Museum is located in Kingsville. It has four premises. The main premises is open to the public and has a limit of $400,000. The premises where James conducts restoration operations has a limit of $200,000. The storage premises has a limit of $500,000 and the special private viewing only premises has a limit of $250,000. The occurrence limit is $1,000,000.

An unexpected flash flood strikes and all premises are involved. No premises loss exceeds its limits but the total damage at all locations is $1,250,000. Because of the $1,000,000 cap, James does not receive more than $1,000,000.

 

4. We Do Not Cover

Coverage does not apply to any property whose ownership is disputed. Coverage also does not apply to property whose title is defective, regardless of whether the title has or has not been secured or perfected.

 

Example: The Gaspar family gave a valuable portrait to the Civic Museum. The Peterson family was quite surprised to see the portraits because that portrait had been loaned to the Gasper family 20 years earlier and never returned. The Peterson family demanded the return of the portrait. The Peterson proved ownership and took the portrait. The loss of the portrait is not a covered loss.

 

5. We Do Not Pay

The insurance company does not necessarily pay every loss to covered property. It does not pay for the loss of value for any item of property when it is determined that the value of any item is of inaccurate or false provenance, attributed to the item incorrectly, or not authentic.

Notes:

This suggests some possibility of fraud, error, or mistake. Interestingly, this coverage form does not have any exclusions that address these issues like other coverage forms. This is essentially an exclusion.

Provenance is the place of origin or derivation, proof of past ownership, or authenticity.

 

Example: Patron’s Museum has a coat that Abraham Lincoln wore when he delivered the Gettysburg Address. Patron’s carefully researched the provenance before purchasing it. The coat was shown on a recent PBS documentary and an uproar ensued. Another museum claimed it had the actual coat. Forensics was conducted and the other museum’s claim was supported. Patron’s coat was a fraud. This insurance does not pay for the loss of the coat’s value.

Property Not Covered

Three specific types of property are not covered:

1. Contraband

Property that is illegal to possess is not covered. Property that is legal to possess but that is being used as part of an illegal trade or that is being transported illegally is also not covered.

 

Example: Mackensie Museum commissioned an original wood sculpture by a local artist. The piece was accepted and the commission paid. A year later a fire occurred, damaging the sculpture. The claims investigation revealed that the material used in the sculpture was illegally logged rosewood. No coverage is available for the damaged sculpture.

 

2. Property at Trade Shows or Fairgrounds

Any property that is on exhibit at either a trade show or a fairground is not covered. The term fairground includes all types of fairgrounds and is not limited to only county, regional, or state fairs.

3. Shipments by Mail or Express Carriers

Property that is shipped using USPS Registered Mail is covered but property is not covered when in the custody of the United States Postal Service (USPS) or any express carriers.

Coverage Extensions

Provisions That Apply To Coverage Extensions

There are two coverage extensions. The limit for each is either the limit on the schedule of coverages or the default limit included in the coverage form. These limits are part of the applicable limit for covered property and not in addition to it unless otherwise indicated. These limits are not added to or combined with limits for any other coverage extension or supplemental coverage and are not subject to any coinsurance provisions that apply elsewhere in the coverage form.

1. Debris Removal

a. The insurance company pays costs incurred to remove debris that is created because a covered peril to covered property occurs.

b. Debris removal does not include any costs for removing, restoring, replacing polluted land or water or to extract pollutants.

c. There are two parts of the Limit section. The first is restricting any debris removal payment to no more than 25% of the amount paid for the actual direct physical loss. The second part is that when the debris removal and the physical damage loss are added together, no more than the limit of insurance is paid.

d. An additional $5,000 (or a higher amount entered on the schedule of coverages) is available if the debris removal expense is more than 25% of the loss amount or if the combined cost of loss and debris removal is more than the limit of insurance for the covered property.

e. The named insured must report debris removal expenses to the insurance company within 180 days of the loss date in order for this coverage extension to apply.

2. Defense Costs

Note: This coverage form is providing third-party coverage for the benefit of the named insured for property of others that is in its care, custody, or control. Because of this, the insurance company takes control of the loss and negotiates with the third party that sustained damage. This section explains how the insurance company and the named insured are to work together on any such claim.

a. The insurance company decides when to defend suits brought against the named insured that result from covered loss or damage to covered property. This is not the decision of the named insured. This means that the insurance company is in control of the investigation and the manner in which suits or claims are handled.

b. Once the insurance company has paid out its limits based on a judgment or written settlement, the insurance company is no longer under an obligation to defend the named insured.

c. The named insured’s only involvement in the claim is to act within the written approval of the insurance company.

d. Once the insurance company agrees to defend a suit, it also agrees to pay seven specific expenses related to it. These expenses are not part of the limit of insurance and no deductible applies to any of them:

 

Example: Jess and James Smith sue Madison’s Museum because of damage to the painting they had loaned to the museum. Madison’s disputes the claim, believing the damage existed at the time the Smith’s loaned it to them. Madison’s insurance company decides to defend the claim and all costs associated with the defense are covered but only up to the premises limit. Unfortunately, Madison’s loses the case. The cost to defend was $50,000 and Madison was required to pay $35,000. However, the premises limit was only $60,000. The insurance company paid for the defense and $10,000 extra toward the claim but Madison had to pay the remaining $25,000.

Supplemental Coverages

Provisions That Apply To Supplemental Coverages

There are five supplemental coverages. Each has its own default limit that can be increased by entering a higher limit on the schedule of coverages. Limits for any supplemental coverage are separate from the applicable limit for the covered property, not part of it.

The limit available for coverage described under a supplemental coverage is the only limit available for it. It is not the total of the limit for a supplemental coverage and the limit for covered property. The limits are not added to or combined with limits for any other supplemental coverage or coverage extension. They also are not subject to any coinsurance provisions that apply elsewhere in the coverage form.

1. Bailee Legal Liability

This coverage applies to the named insured’s legal liability for loss or damage to covered property of others. Covered property consists of fine arts or rare objects considered to have artistic, historic, cultural, and scientific significance on loan to the named insured or in its care, custody, or control. This applies only when there is written documentation that the property’s owner did not want the named insured to insure the objects.

This Supplemental Coverage does not apply to property when there is written documentation that the owner of the property released the named insured from liability for the property.

The most paid in a single occurrence is $25,000. This limit can be increased.

2. Items Used to Display, Pack, or Ship Covered Property

Stands, frames, easels, packing material, crates, and similar items the named insured uses to display, pack, or ship covered property are covered for direct physical loss or damage that a covered peril causes.

The most paid in a single occurrence is $10,000. This limit can be increased.

3. Reference Library

Photographs, catalogs, books, letters, reference articles, and other documentation that is part of the named insured’s reference library are covered for direct physical loss or damage that a covered peril causes.

The most paid in a single occurrence is $5,000. This limit can be increased.

Note: A Valuable Papers and Records Coverage Form should be considered instead of increasing the limit because of the coverage provided by that form.

Related Articles:

AAIS Valuable Papers and Records Coverage

ISO Valuable Papers And Records Coverage Form

4. Transit Coverage

Coverage applies from the time the covered property is removed from its current display or storage area, while it is prepared and packed so it can be shipped, while it is in transit, and until it is unpacked and displayed or stored at its final destination. Coverage is for direct physical loss or damage that a covered peril causes.

The most paid in a single occurrence is $50,000. This limit can be increased.

5. Unnamed Location Coverage

This Supplemental Coverage extends insurance for direct physical loss or damage to covered property that a covered peril causes when the property is temporarily at a location other than the one listed on the schedule of coverages.

The most paid in a single occurrence is $50,000. This limit can be increased.

Perils Covered

Coverage applies to risks of direct physical loss or damage unless the loss is limited or caused by an excluded peril.

Perils Excluded

1. Primary Exclusions

The first group of exclusions is essentially absolute. Subject to specific exceptions, loss or damage by each is totally excluded, regardless of any other cause or event that contributes to a loss, either concurrently or in any other sequence. The insurance company does not pay for any direct or indirect loss or damage caused by or that results from any of these events.

Related Article: Concurrent Causation and Anti-Concurrent Causation Clauses–A Discussion

a. Civil Authority

There is no coverage for a loss that results from an order any civil or government authority issues. These orders may include seizure, confiscation, destruction, or quarantine of property but this exclusion is not limited to only these. The only exception is when the loss or damage is caused by a civil authority destroying property as a means of controlling a fire. This exception applies only if the fire is the result of a covered peril.

b. Nuclear Hazard

The insurance company does not cover loss or damage caused by or that results from any nuclear reaction, radiation, or contamination. This is absolute and applies whether the nuclear incident was controlled or not, and by whatever means caused. Any loss the nuclear hazard causes is not treated as a loss that fire, explosion, or smoke causes. The only exception is when a fire results from the nuclear fire, direct loss or damage from that fire is covered but the damage from the nuclear hazard remains excluded.

c. War and Military Action

The insurance company does not pay for loss or damage caused by any act of war. Undeclared and civil war or warlike action by a military force are all considered war. All actions taken to hinder or defend against an actual or expected attack by any government or sovereign authority that uses military personnel or other agents are also considered war and excluded. In addition, acts of insurrection, rebellion, revolution, or unlawful seizure of power and any action any government authority takes to prevent or defend against any such acts are excluded. If any action within the terms of this exclusion involves nuclear reaction, radiation, or contamination, this exclusion applies in place of the nuclear hazard exclusion.

Note: This means that the exception for resulting fire under the nuclear hazard is not covered when it is the result of war.

2. Secondary Exclusions

The second group of exclusions applies to loss or damage caused by or that results from any of the following loss events. Some of these exclusions have exceptions, conditions, or limitations that should be noted and reviewed carefully. The insurance company does not pay for any loss or damage caused by or that results from any of these events.

a. Birds, Vermin, Rodents, or Insects

There is no coverage for loss or damage that birds, vermin, rodents, or insects cause.

Note: Examples are mice, rats, cockroaches, squirrels, beavers, spiders, ants, centipedes, and ticks. Each is characterized by destructive habits that cause damage, such as gnawing and nibbling. Damage due to waste products and nesting is also excluded.

b. Contamination or Deterioration

Loss or damage that is caused by contamination or deterioration is excluded. This applies to corrosion, decay, fungus, mildew, mold, rot, and rust. It also applies to any quality, fault, or weakness in covered property that causes it to damage or destroy itself. However, this exclusion is not limited to only these described causes.

 c. Exposure to Light

Fading or darkening loss or damage that is caused when covered property is exposed to either light or ultraviolet (UV) rays is excluded. Similar types of loss or damage resulting from exposure to light or UV rays are also excluded.

d. Missing Property

The unexplained or mysterious disappearance of covered property is excluded when there is no physical evidence to suggest what happened to it and the only proof that a loss occurred is based on an audit or physical inventory.

The one exception is that this does not apply to covered property while it is in the custody of carriers for hire.

e. Repair, Restoration, Retouching, Framing, or Conservation

This exclusion applies only when processing or work is being conducted directly on covered property. Loss or damage to covered property that occurs during such activities is excluded. Examples of such processing activities are repair, restoration, retouching, framing, or conservation work. The exclusion is quite expansive and applies to any negative outcome to the property.

 

Example: Jared is an employee of Mainville Museum. He is cleaning three of its paintings. Two are nearby but he is working on only one. Jared had carefully applied a cleaning solution to his brush when an earthquake struck. He dropped the brush directly onto the painting but the solution canister flew off the counter and sprayed its contents on the paintings waiting to be cleaned. The damage to the first painting is not covered because of this exclusion. The good news is that the damage to the other paintings is covered because those paintings were not being worked on at the time of the loss.

 

f. Temperature/Humidity

Loss or damage to covered property that dryness, dampness, humidity, changes in, or extremes of temperature causes is excluded. However, if a covered peril occurs as a result of any of these, coverage applies to the loss or damage that covered peril causes.

g. Wear And Tear

Loss caused by wear, tear, marring, or scratching is excluded.

What Must Be Done In Case Of Loss

1. Notice

The named insured must give prompt notice of a loss to the insurance company or its agent. The notice must include a description of the property lost or damaged. If a criminal act caused the loss, the appropriate law enforcement agency must also be notified. The insurance company has the right to require that any notice to it be in writing.

2. You Must Protect Property

During and after a loss, the named insured must take all reasonable steps to protect covered property from further loss. The insurance company pays reasonable costs the named insured incurs to do so if the named insured maintains accurate records to substantiate the costs. Paying these costs is not in addition to the policy limits. There is no coverage for any repairs or emergency measures performed on property not already damaged by a covered peril.

Note: It is important to realize that any such costs incurred will reduce the amount available to pay the actual loss.

3. Proof of Loss

The named insured must complete and return the insurance company's prescribed proof of loss forms within 60 days after the company requests it. The information provided must include the time, place, and circumstances involved with the loss and information on any other insurance coverage that may apply. It must also include the named insured’s interest and the interest of others with respect to the property involved, including lienholders, loss payees, and mortgagees. Any changes in the title to the property during the policy period must be disclosed, in addition to providing any other reasonable information the company may require to adjust and settle the loss.

4. Examination

Examination under oath may be required in matters that relate to the loss. The insurance company may request these examinations more than once but such requests must be reasonable. If multiple persons are examined, the company has the right to examine each individual separately.

5. Records

The named insured must produce any records related to the loss. The insurance company must be allowed to make copies and take extracts of them as often as it reasonably requests. Records include tax returns and bank microfilms of all related cancelled checks but records are not limited to just these.

Note: Records regarding provenance, ownership, appraisal, and contractual relationships are all of particular interest in settling claims for this property. 

6. Damaged Property

Both damaged and undamaged property must be made available for the insurance company's inspection as often as reasonably necessary. It must also be allowed to take samples of the property to the extent necessary to adjust and settle the loss.

7. Volunteer Payments

The named insured has the right to make payments, assume obligations, pay or offer rewards, or incur other expenses. However, unless the insurance company has given written approval for such actions, the named insured cannot expect any reimbursement. The only exception is that the insurance company will pay for the costs incurred to protect property as item 2. above describes.

8. Abandonment

The insurance company decides when and if it will take ownership of the named insured’s property. The named insured is therefore not permitted to abandon damaged property to the insurance company until the insurance company agrees in writing to accept it.

9. Cooperation

The named insured must cooperate with the insurance company. Any actions required of the named insured within this policy must be performed.

Valuation

1. Museum Collection

Total Loss

The amount paid never exceeds the covered property’s fair market value at the time of loss.

Partial Loss

The following applies in the event of a partial loss to an item of covered property:

·         The cost to repair or restore the covered property to the condition it was in just before the event that caused the loss or damage is part of the value.  This is then added to the diminished value of the covered property.

·         The diminished value must be established by an independent appraiser who is selected by the named insured but subject to the approval of the insurance company. The cost of the appraisal is a shared cost of the insurance company and the named insured. 

·         The cost to repair plus the diminished value cannot exceed the fair market value of that property as of the date of the loss.

 

Example: An antique desk worth $15,000 was damaged in a fire. The cost to repair it will be $6,000 but when repaired it will be worth no more than $2,000 because the patina will have been lost. The partial loss settlement would be $13,000 plus $6,000 = $18,000. Because the partial loss settlement would be more the total loss settlement, the most paid is $15,000.

 

2. Pair or Set

The named insured must make a decision that affects the valuation when part of a pair or set is damaged but the remaining part(s) is not. The named insured can give the undamaged part to the insurance company. In that case, the loss is settled based on the total loss valuation above.

The named insured can keep the undamaged part. In that case, the damaged part’s value is settled based on the partial loss valuation in item 1. above.

3. Other Property

Property that is not fine arts or rare objects considered to have artistic, historic, cultural, and scientific significance is subject to actual cash value.

How Much We Pay

1. Insurable Interest

The insurance company does not pay more than the named insured's insurable interest in the covered property at the time of loss.

Note: This could be very complicated when adjusting property of others. The named insured has little or no insurable interest in property of others. It might be better if there is a separate statement that limits coverage on property of others to the property owner’s insurable interest.

2. Deductible

The insurance company pays only the amount of loss that exceeds the deductible amount on the schedule of coverages. The deductible applies per occurrence and only to property the named insured owns.

Note: The question may arise as to how the deductible would apply to property the named insured owns jointly with others or that is a gift promised to the named insured.

3. Loss Settlement Terms

Museum Collection

This applies only in cases that involve total loss.

Subject to How Much We Pay Items 1., 2., 4., and 5., the insurance company pays the amount established under Valuation. However, it does not pay more than the limit that applies to the covered property.

Other Property

This applies only in cases that involve total loss.

Subject to How Much We Pay Items 1., 2., 4., and 5., the insurance company pays the least of the following:

Note: There are no loss settlement terms that apply to partial losses.

4. Insurance under More Than One Coverage

Two or more coverages in the coverage form may apply to the same loss. In that case, the insurance company does not pay more than the value of the actual claim, loss, or damage sustained.

5. Insurance under More Than One Policy

a. Proportional Share

The named insured may have other coverage subject to the same terms as this coverage form. In that case, this coverage form pays only its share of the covered loss. That share is the proportion that its limit of insurance bears to the limits of insurance of all insurance that covers on the same basis.

b. Excess Amount

There may be other coverage available to pay for the loss other than as described in 5. a. above. In that case, this coverage form pays on an excess basis. It pays only the amount of covered loss that exceeds the amount due from the other coverage, whether collectible or not. Any payment is subject to the limit of insurance that applies.

Loss Payment

1. Loss Payment Options

a. Our Options

The insurance company has the following four loss payment options if a covered loss occurs.

b. Notice of Our Intent to Rebuild, Repair, or Replace

The insurance company must notify the named insured of its intent to rebuild, repair, or replace within 30 days after receiving a properly completed proof of loss.

2. Your Losses

a. Adjustment and Payment of Loss

The insurance company adjusts all losses with and pays the named insured unless another loss payee named in the policy is involved.

b. Conditions for Payment of Loss

The insurance company pays a covered loss within 30 days after it receives a properly prepared proof of loss and the amount of loss is established. The amount of loss is determined by either a written agreement between the company and the named insured or after an appraisal award is filed with the company.

3. Property of Others

a. Adjustment and Payment of Loss to Property of Others

The insurance company has the option to adjust and pay losses that involve property of others either to the named insured acting on the property owner’s behalf or to the property owner.

b. We Do Not Have to Pay You if We Pay the Owner

The insurance company is not obligated to pay the named insured when it pays the property owner. In addition, if the property owner sues the named insured, the company has the option to defend the named insured in that suit.

Other Conditions

1. Appraisal

The insurance company and the insured may not always agree on a covered claim’s value. This condition provides one method to resolve disputed claims.

Either party can request an appraisal to determine a disputed claim’s value. Once requested, the parties have 20 days to obtain their own independent and competent appraisers and give their appraiser's name to the other party. The two appraisers then have 15 days to select a competent impartial umpire. If they cannot agree on an umpire within that time period, either can request that a judge in the court of record in the state where the property is located appoint one.

The appraisers then determine the claim’s value. They submit any differences to the umpire. Once any two of the three parties agree, the amount of loss is set.

Each party pays its own appraiser. Both parties share the umpire’s cost and other expenses equally.

Note: This condition may be more difficult to enforce than in other coverage forms because both parties must find competent appraisers. It is more difficult to find impartial and competent appraisers when unusual property is involved.

2. Benefit to Others

The insurance provided does not directly or indirectly benefit any party that has custody of the named insured's property.

3. Carriers for Hire

The named insured may accept shipping receipts or bills of lading that limit the carrier for hire’s liability to amounts that are less than the covered property’s value.

4. Conformity with Statute

Any condition in this coverage form that conflicts with any applicable law is amended to conform to that law.

5. Inventory Records

This condition is unique to this coverage form. The named insured is required to maintain inventory records on covered property and must retain these records for at least three years following the policy’s expiration date. These records are required to include all of the following:

The named insured must produce these records and inventories for the insurance company as often as it reasonably requires and allow it to make copies of them as needed.

6. Misrepresentation, Concealment, or Fraud

This coverage is void if any insured at any time willfully concealed or misrepresented a material fact that relates to the insurance provided, the property covered, or its interest in the property. It is also void if fraud or false swearing by any insured took place concerning the insurance provided or the property covered.

Note: The named insured must deal with the insurance company honestly. Its rights of recovery may be voided if it intentionally misrepresents or conceals a material fact or information. This means that the insurance is treated as simply having never existed versus denying a particular claim.

7. Packing

The named insured must agree to have only trained and skilled packers pack and unpack covered property and use only appropriate materials and procedures to do so.

Note: This agreement is similar to a warranty. If the named insured does not do as agreed, the insurance company has the right to not pay any claim related to this packing condition.

 

Example: Massive Museum, as part of an outreach campaign, had loaned artwork to the Clayburn family. Massive Museum had it professionally packed and transported to the Clayburns. The Clayburns decided to return the items early and carefully packed everything up in order to hand deliver them to the museum. Unfortunately, an accident happened on their trip and the artwork was destroyed. Unfortunately, because the packing was not in accordance with this condition, the claim for the damaged artwork was denied.

 

8. Policy Period

Only covered losses that occur during the policy period are paid.

Note: If the museum loans items to other museums it is important to note that the policy period is based on the mailing address on the policy, not where the museum items are being exhibited.

9. Recoveries

Paying the loss does not end the obligations of the named insured and the insurance company toward one another. Additional provisions apply if the insurance company pays a loss and the lost or damaged property is subsequently recovered or the parties responsible for the loss pay for it.

Either party that recovers property or payment must inform the other. Recovery expenses that either party incurred are reimbursed first. If the named insured keeps the recovered property, it must refund the amount of the claim the insurance company paid, unless the company agrees to a different amount. If the claim paid is less than the agreed loss due to applying a deductible or another limitation, any recovery is prorated between the named insured and the insurance company based on the company's respective interest in the loss.

10. Restoration of Limits

Payment of a claim does not reduce the limit available for future claims.

11. Subrogation

The insurance company acquires the named insured's rights of recovery from third parties after it pays a loss. The named insured must help the insurance company secure those rights. The company is not obligated to pay a loss if the named insured hinders or impairs the company's rights of subrogation. However, the named insured can agree in writing to waive recovery rights from others before a loss occurs.

12. Suit against Us

The insurance company cannot be sued by anyone for any coverage until all the terms of the coverage form are met. Suits must be brought within two years after the named insured first knew about a loss. If a state law invalidates this condition, any suit brought must comply with the provisions of that law and begin within the shortest period of time allowed by law.

Note: It is normal for a basic coverage form to be modified by mandatory state-specific endorsements that address issues that relate to that specific state.

13. Territorial Limits

Covered property can be located anywhere in the world.

However, coverage does not apply to covered property that is situated in or shipped to any country that is subject to United States trade or travel restrictions such as economic sanctions or trade embargos.

Note: This is a very open condition that the named insured should be aware of because trade and travel restrictions can change quickly.

Definitions

Defined terms are used throughout the coverage form. Restricting their meaning to the definition in it is how all parties have a clearer understanding of the coverage intended. Four terms are defined:

1. Limit

The amount of coverage that applies to the insured property.

2. Schedule of coverages

Any page labeled as such that contains coverage information. Declarations and supplemental declarations are part of this definition.

3. Suit

This is a judicial proceeding. It also includes any required arbitration proceedings to determine liability and damages to covered property of others that were in the named insured's care, custody, or control.

4. Terms

All policy provisions, limitations, exclusions, conditions, and definitions that apply to this coverage.

IM 8106–SCHEDULE OF COVERAGES–MUSEUM COLLECTION COVERAGE FINE ART COMPREHENSIVE FORM

This Schedule of Coverages is used with IM 8101–Museum Collection Coverage–Fine Art Comprehensive Form.
IM 8106 contains the following information:

Policy Number

IM 8106 has a space to enter the policy number.

Covered Premises

All covered locations’ premises number, a description of each premises, and the limit that applies to the premises must be listed in the spaces provided.

There is also a space to enter the Occurrence Limit that applies to all locations in a single occurrence. Unlisted locations are not covered.

Note: The Occurrence Limit is similar to a Catastrophe Limit in that it caps the payment when a single event damages multiple premises. It consists of all premises limits plus all coverage extensions and supplemental coverages. Whenever any of these limits are increased, the occurrence limit should also be increased.

Coverage Extensions

The limits on the Schedule of Coverages for the following coverages apply to all covered locations:

The limit is $5,000 unless a different limit is entered.

There is no limit in the coverage form and there is no provision to enter a limit on the schedule of coverages. The entry in the Limit column is “See Form.” As a result, policy limits apply but defense costs reduce the amount available to pay for the loss.

The limit is $15,000 unless a different limit is entered.

Supplemental Coverages

Each of these coverages provides additional limits of coverage or additional coverage. Required entries vary by type of coverage.

The limit is $25,000 unless a different limit is entered.

The limit is $15,000 unless a different limit is entered.

The limit is $15,000 unless a different limit is entered.

The limit is $10,000 unless a different limit is entered.

The limit is $50,000 unless a different limit is entered.

The limit is $5,000 unless a different limit is entered.

The limit is $25,000 unless a different limit is entered.

The limit is $100,000 unless a different limit is entered.

The limit is $100,000 unless a different limit is entered.

The limit is the named insured’s deductible under the U. S. Indemnity Program or $500,000, whichever is less.

Deductible Amount

A deductible amount must be entered in the space provided.

Additional Information

This section of the schedule of coverages lists endorsements and forms included when the policy is issued.

IM 8101–MUSEUM COLLECTION COVERAGE–FINE ART COMPREHENSIVE FORM

This analysis is of the 10 12 edition. This is the initial edition.

This coverage form is similar to IM 8100–Museum Collection Coverage analyzed above except for four sections. This analysis addresses only how the IM 8100 and IM 8101 differ in those sections.

Coverage Extensions

There is one additional Coverage Extension:

Property of Others Held for Sale

This is coverage for consigned goods.

Property that is similar to the named insured’s property and is in its care, custody, or control for the sole purpose of being sold by the named insured for the property owner’s benefit is covered for direct physical damage caused by a covered peril. Coverage is limited to no more than the 90 days that start on the date the property comes into the named insured’s care, custody, or control. The most paid in a single occurrence that involves such property is $15,000 but the limit can be increased.

Supplemental Coverages

Five Supplemental Coverages are added and five limits are changed. The following are the Supplemental Coverages added:

Museums have responsibilities with respect to objects in their collection. They are required to maintain records regarding their collection that researchers can use. When a part of the collection sustains loss or damage, the collection records must be accurately updated. Expenses to update the registrar’s records are covered following a covered property loss. Examples of such documents and records are condition reports, donor agreements, research and exhibition and publication history. Of particular importance may be accessioning and possibly deaccessioning records that are vital to the provenance of such property.

The most paid in a single occurrence is $15,000. This limit can be increased.

Costs to prepare an inventory can be significant. This supplemental coverage pays the cost to prepare an inventory of both damaged and undamaged property following a covered property loss. The inventory must provide costs, values, quantities, and the amount of loss.

Coverage does not apply to expenses the named insured incurs under Other Conditions 1. Appraisal.

There is also no coverage for fees charged by claims consultants hired to work on the named insured’s behalf. Examples are public adjustors or loss assessors.

The most paid in a single occurrence is $15,000. This limit can be increased.

This supplemental coverage pays expenses the named insured pays to recharge its handheld or automatic fire extinguishing equipment after it discharges. The only expenses covered are those that relate to accidental discharges, are the result of a covered peril, or to actually fight a fire.

Expenses to repair or replace controls or faulty valves that an accidental discharge causes are also covered. Recharging expenses for discharges that occur during installation or testing are not covered.

The insurance company has the option to pay expenses to replace discharged equipment if doing so is less expensive than recharging it.

The most paid in a single occurrence is $50,000. This limit can be increased.

The named insured may decide to offer a reward following loss or damage to covered property. If it does, the insurance company reimburses the named insured for amounts it awarded if the information results in stolen undamaged objects being returned. It reimburses if the information leads to a conviction for vandalism, theft, or arson related to such damage to covered property. In either case, the amount the company pays does not increase based on the number of people who provide information. The most paid in a single occurrence is $25,000. This limit can be increased.

 

Example: A group that calls itself the Anti-Clown Bandits vandalizes the Clown and Cousin Museum. The museum offers a reward of $25,000 for information that leads to the arrest of the Anti-Clown Bandits. The Bandits were proud of their work and posted it on Facebook. Three concerned citizens contacted the police who traced the information and arrested the Bandits. Clown and Cousin split the reward between the three citizens and were then reimbursed by the insurance company.

 

The National Endowment for the Arts administers the U.S. Government’s Arts and Artifacts Indemnity Program. This Program is designed to ease insurance burdens on museums that want to hold international exhibitions.

When the named insured sustains a loss that is covered under the Program, it will receive payment from that program. However, that program may have a substantial deductible.  

This coverage pays that deductible.

The coverage provided by the Program may differ from the one provided by this coverage form. If so, this coverage form is amended to conform to that Program’s form except that b. Nuclear Hazard and c. War and Military Action remain excluded in this coverage form.

The most paid in a single occurrence is the amount of the named insured’s deductible under the U. S. Indemnity Program or $500,000, whichever is less.

The following Supplemental Coverages limits are changed:

The $25,000 limit in IM 8100 is increased to $50,000 in IM 8101.

The $10,000 limit in IM 8100 is increased to $15,000 in IM 8101.

The $5,000 limit in IM 8100 is increased to $15,000 in IM 8101.

The $50,000 limit in IM 8100 is increased to $100,000 in IM 8101.

The $50,000 limit in IM 8100 is increased to $100,000 in IM 8101.

Perils Excluded

The following exclusions in IM 8100 are not in IM 8101:

How Much We Pay

2. Deductible in IM 8101 is waived when the named insured owned property is at a premises that is not on the schedule of coverage. IM 8100 does have such a waiver.

ENDORSEMENTS AND SCHEDULES

AAIS has developed the following endorsements and schedules for use with the Museum Collection Coverage Form.

IM 8110–Missing Property Exclusion

(Use with IM 8101)

This endorsement restricts coverage. It is used to exclude unexplained or mysterious disappearance of covered property when there is no physical evidence to suggest what happened to it and the only proof that a loss occurred is based on an audit or physical inventory. This exclusion does not apply to covered property in the custody of carriers for hire.

IM 8111–Fraud and Deceit Limitation

This endorsement extends coverage to apply to loss or damage due to theft of covered property when a fraudulent act induces the named insured, its agents, or its consignees to part with the covered property.

IM 8112–Earthquake Limitation

This endorsement restricts coverage. It is used to exclude losses caused by earth movement and then to provide only earthquake coverage. The limited coverage provided is subject to the limits and deductibles on the endorsement schedule.

IM 8113–Flood Limitation

This endorsement restricts coverage. It is used to exclude loss caused by flood and then to provide a limited amount of flood coverage subject to the limits and deductibles on the endorsement schedule.

IM 8114–Sewer Backup Limitation

This endorsement restricts coverage. It is used to exclude loss due to sewer backup and then to provide a limited amount of sewer backup coverage subject to the limits and deductibles on the endorsement schedule.

IM 8115–Exposure to Light Exclusion

(Use with IM 8101)

This endorsement is used to exclude loss or damage to covered property due to exposure to light or ultraviolet (UV) rays.

UNDERWRITING CONSIDERATIONS

Museums that this coverage form insures must be at permanent locations. This means they are subject to the common perils that affect fixed or permanent locations. This is important to keep in mind because property inside museums is highly susceptible to damage by fire, smoke, and water. Museum property must be carefully evaluated to determine the perils that can result in significant loss.

Related Article: Commercial Property Underwriting Considerations

Only professional appraisers can establish the values of museum objects. The museum should have an up to date inventory with current appraised values. These values can fluctuate considerably from one year to another and keeping them current is important.

Fire, smoke, and theft are the major loss cause concerns and fire and theft systems and alarms should be in place when substantial values are involved. Sensitive environmental or atmospheric systems and alarms should be considered in cases where items are susceptible to damage because of changes in temperature or humidity. Water damage from sprinkler systems that discharge is another important loss concern. Any fine art object especially susceptible to damage by water should be located away from sprinkler systems (and their discharge) and protected in some different way.

Many objects should be kept at ground floor level or higher because damage from humidity and water occurs more frequently below grade. Lower levels of a building may be appropriate for other storage or for processing and refurbishing operations. It is important to keep activities that involve heat (including the use of flammable liquids) well away from the main inventory. Flammables should be kept in proper containers in a well-ventilated area to prevent build-up of fumes and away from combustible materials that can increase the chance of spontaneous combustion and fire.

Transit is a major exposure that starts with the way objects are packed. Professional packers must be used to prepare objects for transport and a museum transport specialist should be used in transit. Equally important is unpacking the objects. Objects located off premises should be documented and recorded and security at those premises should be adequate for the type of item involved and its value. Fraudulent acts and trickery can occur and there should be safeguards to prevent unintended delivery of objects to criminals. Security at off-site exhibits must be evaluated and appropriate guarantees obtained before consenting to exhibit. When an object is given to another party on consignment, a signed consignment agreement should be required to eliminate any questions of its ownership and that party’s legal responsibility for it.

Museum management experience and financial security is a very important part of the underwriting process. Maintaining an appropriate structure to exhibit can be very expensive. A long-term endowment program is important as is regular fundraising activities and interested patrons. Museum curators and directors should be appropriately credentialed and all staff that provides restoration services should have appropriate training.