ISO Commercial Fine Arts Coverage Form

ISO COMMERCIAL FINE ARTS COVERAGE FORM ANALYSIS

(April 2018)

 

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INTRODUCTION

The Insurance Services Office (ISO) Commercial Fine Arts Coverage Form covers a variety of objects of fine art owned by businesses that are not in the fine arts business. This coverage is on a scheduled basis with each item covered on a valued basis. Examples of fine arts are paintings, drawings, lithographs, rugs, tapestries, statuary, bronzes, marbles, porcelains, antique furniture, and rare books. Coverage can also apply to works of art that belong to others in the named insured's care, custody, or control. Coverage applies at designated locations and in transit.

Fine arts dealers, galleries, or museums whose primary business involves works of art do not use this coverage form but instead are covered by their own coverage forms.

Related Articles:

ISO Fine Arts Dealers and Galleries Coverage Form Analysis

ISO Fine Arts Museums Coverage Form Analysis

POLICY CONSTRUCTION

Commercial Fine Arts Coverage requires at least the following six forms:

Related Article: IL 00 17–Common Policy Conditions Analysis

Related Article: CM 00 01–Commercial Inland Marine Conditions

IH DS 74–COMMERCIAL FINE ARTS DECLARATIONS

The advisory Commercial Fine Arts Declarations does not have spaces for the named insured, its mailing address, other named insured information, the policy period, or the description of the insured business. That information is on the Common Policy Declarations. IH DS 74 contains the following information:

Insurance Company and Producer Name

The name of the insurance company that provides the coverage and the name of the agent or broker that produces the business are entered in the spaces provided.

Limits of Insurance

This section has spaces to enter the following:

A. Property at Your Premises

B. Limit of insurance for All Covered Property in Any One Occurrence

Breakage Exclusion

The breakage exclusion in the coverage form is deleted if the box in this section is checked.

Deductible

This section has a space to enter the amount of deductible.

Rates and Premiums

The following is entered when coverage is written on a non-reporting basis:

The following is entered when coverage is written on a reporting basis:

Special Provisions

Any special provisions are entered in the space provided.

IH 00 74–COMMERCIAL FINE ARTS COVERAGE FORM ANALYSIS

This analysis is of the 12 13 edition. Changes from the previous edition are in bold print.

INTRODUCTION

This section encourages the careful reading of the entire coverage form to determine what is covered, what is not covered, rights, and duties. It defines we, us, and our as the insurance company that provides this insurance coverage. It also defines you and your as the named insured on the declarations.

Note: This section does not refer to other words that have special meaning being defined in Definitions because there are no defined words.

A. Coverage

The insurance company pays for direct physical loss or damage to covered property but only when that loss is from a covered cause of loss.

1. Covered Property

Covered property is the property described in the declarations but only if it is fine arts owned by the named insured or fine arts that belong to others that are in the named insured’s care, custody, or control.

 

Example: Double M Machinery Manufacturing owns and occupies its office building. Double M is very involved in local philanthropic and charitable works in its town and takes considerable pride in its office building. It has several valuable works of art in the office area of its building and insures them under a Commercial Fine Arts Coverage Form. It occasionally displays similar pieces from local artists and artisans and uses the same coverage form to insure those items for their declared values when they are on display on its premises.

2. Property Not Covered

The following property is not covered property:

a. Property that is being exhibited at fairgrounds or at national or international expositions. If this coverage is needed, it can be added by an endorsement if the appropriate premium is paid.

 

Example: The town where Double M is located hosts a national art exposition every fall and Double M contributes most of its art to an exhibit that features hometown artists and patrons of the arts. Double M's insurance agent takes great care to be certain that the Commercial Fine Arts Coverage Form is endorsed to provide coverage for Double M's art while at this exhibit, despite the substantial additional premium charge.

 

b. Contraband. Any property that is illegal for the named insured to own or that is in illegal trade or transportation is not covered.

 

Example: An electrical fire occurs that results in smoke damage to a few of Double M’s collection. The claims adjustor is surprised to discover that one of the objects is on a list of stolen merchandise. As a result, the damage to the item is not covered and the claims adjuster notifies law enforcement who confiscate the item to return it to its rightful owner. 

 

3. Covered Causes of Loss

Covered causes of loss are direct physical loss or damage to covered property except for causes of loss that are listed in the exclusions section

4. Additional Coverage

Newly Acquired Property

The insurance company covers additional objects of art the named insured acquires during the policy period for up to 60 days but not past the policy’s expiration date. The most this additional coverage pays for loss or damage to such property is 25% of the total limits of insurance for all items listed and described on the declarations or $50,000, whichever is less. The named insured must report the newly acquired property and its value within 60 days after acquiring it and pay additional premium from the date of acquisition. If the acquisition is not reported, this insurance automatically ends 60 days after the acquisition or at the policy’s expiration date, whichever occurs first.

The Coinsurance Additional Condition does not apply to this additional coverage.

Note: The advisory declarations does not have a space for or refer to coinsurance.

 

Example: Double M Machinery Manufacturing acquires a valuable additional painting a few days before Christmas. With the pressure to tie up all its financial loose ends before the end of the calendar fiscal year coupled with the activities of the season, Double M hurriedly hangs the painting and promptly forgets about it. Double M's insurance agent visits the office before the July 1 expiration date for the annual insurance review and notices the painting. Records are checked, fingers are pointed, and excuses made but the oversight is resolved, and Double M finally reports the acquisition to the insurance company. If a loss that involved the painting had occurred more than 60 days after it was acquired, this additional coverage’s provisions would not have applied.

B. Exclusions

1. Primary Exclusions

The first group of exclusions applies whether the loss event results in widespread damage or affects a significant geographical area and is essentially absolute. Subject to specific exceptions, 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.

a. Governmental Action

This exclusion applies to the legal and authorized seizure or destruction of property by a government entity’s order. There is one exception. Loss or damage that is caused when the governmental entity orders property to be destroyed is covered if used as a method to prevent a fire from spreading is covered. However, this exception applies only if the fire being contained would have been a covered fire under this coverage form.

b. Nuclear Hazard

Nuclear reaction, radiation, or radioactive contamination is not covered. There is an exception. If a fire results from the nuclear reaction, radiation, or radioactive contamination there is coverage for the direct loss or damage caused by that fire.

c. War and Military Action

This exclusion lists three specific warlike activities.

2. Secondary Exclusions

The second group of exclusions applies to loss or damage caused by or that result 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 result from any of these events.

a. Delay, loss of use, and loss of market

These are consequential or indirect losses that develop because of a direct loss or damage.

b. Dishonest or criminal acts (12 13 changes)

These are any dishonest or criminal acts that the named insured, its partners, employees, temporary employees, leased workers, officers, directors, trustees, authorized representatives, or members and managers of a limited liability company commit. This also includes theft.

Such acts committed by anyone with an interest in the property, their employees, temporary employees, leased workers, or authorized representatives who act alone or who act in collusion with other parties or with each other are also excluded. This exclusion also applies whether the acts take place during regular working hours.

This exclusion does not apply to acts of destruction by the named insured’s employees, temporary employees, leased workers, or authorized representatives. However, there is no coverage for theft by the named insured’s employees, temporary employees, leased workers, or authorized representatives.

The 12 13 edition removed the part of the exclusion in the previous edition that applied to dishonest or criminal acts committed by anyone entrusted with the property for any reason.

c. Breakage

If art glass windows, statuary, glassware, bric-a-brac, marble, porcelain, and similar fragile property break, there is no coverage for any loss or damage related to its breaking.

There are two exceptions.

 

Example: Most of Double M's objects of art are paintings. There are also a few porcelain vases, several glass objects that are displayed in a locked plexiglass display case that only Double M's President can access.

There is also a very elaborate bronze statue given to the company in recognition of (and appreciation for) its many civic activities. This is displayed on an outside (but enclosed) patio because it is much less subject to damage than the other articles displayed inside.

The usually high additional premium charge for breakage coverage on these items is reduced considerably because of security measures Double M has taken to reduce the chance of breakage.

 

d. Repairing, restoring, or retouching

Loss or damage to property that results from ANY efforts to repair, restore, or retouch it.

 

Example: Double M’s President’s wife notices a small smudge on a painting and attempts to remove it. Her repair attempt creates a hole in the canvas. This damage is excluded.

 

e. Marring, scratching, chipping or denting

Loss or damage to covered property that is caused by or that results from marring, scratching, chipping, or denting. There is an exception. If such loss or damage is caused directly by fire, lightning, explosion, windstorm, earthquake, flood, vandalism, aircraft, rioters, strikers, theft, attempted theft, or accidents to the conveyance that transports the property coverage applies. These listed causes of loss apply only if this coverage form insures them.

f. Voluntary parting

The named insured or anyone else entrusted with the property being tricked or deceived into giving that property away.

g. Unauthorized instructions

When covered property is transferred to another person or place because unauthorized instructions were received to do so.

h. Neglect

Neglect on an insured’s part to do take reasonable measures to preserve and protect covered property from subsequent damage during and after the time of loss.

i. Theft (12 13 addition)

Theft by any person the named insured entrusts covered property to for any reason, whether they act alone or act in collusion with any other party. This exclusion applies 24 hours a day/7 days a week. There is one exception. Covered property that is in a carrier for hire’s care, custody, or control is not subject to this exclusion.

3. Other Exclusions

This group of exclusions applies to loss or damage caused by or that result from any of the following loss events. In every case, if loss or damage by a covered cause of loss occurs as a result of one of these excluded events, coverage applies to the loss or damage the resulting covered cause of loss causes. The insurance company does not pay for any loss or damage caused by or that results from any of these events.

a. Wear and tear

This is loss or damage due to wear and tear.

Note: Wear and tear is damage that occurs naturally because of aging or normal wear.

b. Any quality in the property

These are any qualities in the property that cause it to destroy or damage itself.

Note: An example is a loss or damage caused by hidden or latent defects in the property.

c. Insects, vermin, or rodents

This is loss or damage to covered property caused by or that results from insects, vermin, or rodents.

Note: Some examples are damage from mice, rats, cockroaches, squirrels, beavers, spiders, ants, centipedes, and ticks. Each is characterized by destructive habits that cause damage, such as gnawing and nibbling.

C. Limits of Insurance

The most the insurance company pays for loss or damage in a single occurrence is the limit of insurance on the declarations for the applicable coverage.

D. Deductible

The insurance company does not pay for loss or damage until the amount of the adjusted loss or damage (before capping with the appropriate limit of insurance) exceeds the deductible on the declarations. It then pays the amount of the adjusted loss or damage that exceeds the deductible up to the limit of insurance that applies.

E. Additional Conditions

1. Valuation

The following replaces the Valuation General Condition in the Commercial Inland Marine Conditions:

a. The limit of insurance on the declarations for a specific item is considered that item’s value.

b. All other covered property and newly acquired property is valued at the least of the following:

The value of the property that sustained loss or damage is determined at the time of the loss or damage.

2. Pairs, Sets, or Parts

The following replaces the Pairs, Sets, or Parts Loss Condition in the Commercial Inland Marine Conditions:

a. The insurance company pays the full limit of insurance on the declarations for a listed and described pair or set if there is a total loss to any item that makes up part of that pair or set. The named insured must return the remaining items of the pair or set to the insurance company.

b. If a part of a pair or set not individually listed and described on the declarations is lost or damaged, the insurance company has the following two options:

3. Other Conditions

The following conditions apply in addition to the Commercial Inland Marine Conditions and the Common Policy Conditions:

a. Coverage Territory

The coverage territory is the United States of America, its territories and possessions, Puerto Rico, and Canada. This includes property that is shipped by air within and between these points.

b. Packing and Unpacking

The named insured agrees to have competent packers pack and unpack covered property.

Note: If an incompetent packer is allowed to pack or unpack covered property and a loss results, the loss is not covered.

ENDORSEMENTS

ISO has not developed any specific endorsements for exclusive use with the Commercial Fine Arts Coverage Form. ISO has developed two other endorsements that can be used to respond to specific situations.

IH 99 06–Schedule

Additional items can be listed on this schedule when they do not fit on the Declarations.

IH 99 19–Additional Covered Property

This endorsement is used to include coverage for types of property ordinarily excluded.

IH 99 20–Additional Property Not Covered

This endorsement is used to exclude certain types of property the coverage form insures.

IH 99 22–Loss Payable

Loss payees who have insurable interests in covered property are listed on this endorsement along with the property in which they have that interest.

Note: No commitment is made to notify them of any cancellation.

IH 99 23–Theft from Unattended Vehicle Exclusion

Any theft from a vehicle while it is not attended is excluded. The only exception is that when all compartments, doors, and windows are closed and secured there is theft coverage but only if there is evidence of forced entry.

UNDERWRITING CONSIDERATIONS

Objects of fine art should always have an independent appraisal to determine the appropriate value. The purchase price is important but may not have an actual bearing on an object of fine art’s true value or market price. Appraisals should be updated periodically because changes, such as the death of an artist, may increase the value or cause the value to appreciate. On the other hand, a flood of comparable items on the market may diminish or depreciate the item' value.

Fire and theft are the major cause of loss 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 if the art is susceptible to damage from changes in temperature or humidity.

The degree of care in packing and unpacking objects of art in large part determines how well they fare in transit. Specialized moving and packing operations should be employed when handling and transporting valuable items.

Art 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 art objects to criminals. Security at off-site exhibits must be evaluated and appropriate guarantees obtained before consenting to exhibit. If a fine art 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.

Fine arts should be kept on or above grade level 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 and using flammable liquids well away from the main inventory. Flammables should be kept in proper containers in a well-ventilated area to prevent the build-up of fumes and away from combustible materials that can increase the chance of spontaneous combustion and fire.