Readers Respond To 'Totaled' Art Column
Last months "FC&S Answer" column (see May 28, page 4) prompted a number of readers to write to us about one of the topics covered: salvage rights on totaled artwork for which the insured was indemnified, with the insurer looking for policy justification for acquiring the artwork.
In this scenario, an insureds artwork was damaged–some repairable and some not. The insurer paid for the restoration of the repairable pieces and indemnified the insured for the pieces that were "totaled."
The insured did not want to convey the non-repairable pieces to the insurer and the question was: where in the policy is the insurer granted salvage rights to property for which it has made total payment?
FC&S Associate Editor Diane Richardson (author of a number of books on homeowners coverage published by the National Underwriter Company, which owns this newspaper and FC&S) invoked the principle of indemnity and the homeowners policys recovered property clause to bolster the insurers right to the artwork. Her final answer was that the insurer owned the salvage.
Then we heard from our readers. Bob Prahl, education director for the American Association of Insurance Services in Wheaton, Ill. e-mailed to say: "I read with interest, as I always do, 'The FC&S Answer' column in this weeks issue of NU. The Q&A about the unscheduled oil paintings that were totaled out and the insured refusing to turn over the salvage particularly aroused my interest. Although the ISO form you reviewed did not specifically address salvage rights and their ownership, we believe the AAIS primary homeowners policy is pretty clear on this subject.
"On page 24, 4. Our Options, the policy states in the last paragraph that 'We' may take all or part of the damaged property at the agreed appraised value. Property paid for or replaced by 'us' becomes 'ours.' Just wanted to point out the clarity of our policy on this subject."
So, under the AAIS form, there would be no question of who gets the totaled art: the insurer. Thanks, Bob.
Attorney Clayton H. Farnham of Drew, Eckl & Farnham in Atlanta had this to say: "On the salvage of the artworks, Im interested in Ms. Richardson's assurance that although the policy doesn't say the carrier can take its insured's property after paying a loss, whether total or partial, 'principles of indemnity' allow it."
He went on to say that "'recovered property' clearly contemplates a theft loss, with value restored upon its recovery–no applicability to destructive loss. I think she ignores the fact that it isn't the physical fact of property per se that is insured, but rather, its value. The carrier pays for partial loss of value in a damage situation, with remaining value still held (owned) by the insured, and for total loss of value in case of effective destruction, with nothing useful left.
"When that value is paid, in a damage situation, under the policy's measure of it (one of the [actual cash value] approaches or replacement cost) the insurer has done what it contracted to do, with no corresponding duty [for] the insured
"Courts commonly do two things with insurers in such a context, it seems to me. First, they say that the fact that the insurer provides for itself as to the property in theft situations indicates that it has chosen not to do so in the case of damage loss. Second, they say that anything the insurer wants, it needs to spell out with the same specificity as its other terms and conditions, which are plentiful and plain.
"In my years of representing property insurers, I'd not feel good about trying to get a judge to order an insured to take away an insured's property without a plain term in the contract allowing it," he added.
Chuck Marshall, vice president of global risk management at BHP Petroleum in Houston, was even stronger in his case for the insured being left with the salvage.
"I normally agree with your FC&S opinions, and follow the logic in your May 28 answer, butI would be highly suspicious of an underwriter who is claiming the salvage of paintings declared constructive total losses. What possible salvage value would a painting have that cost more to repair than its repaired value? What is the market for scorched, ripped or stained cloth?
"I notice that the questioner conveniently omits the reason the hapless insured wants to keep the damaged goods. My suspicion would be that the adjuster is probably an art aficionado, who realized that the appraiser had not recognized the dirty, unsigned, long-lost paintings by C?zanne, Picasso and Whistler; and that cleaned and repaired would be worth a fortune."
"Second question: Why not let the insured have them for the frame value or a nominal fee? After all, how much could the insurer get for damaged paintings of such little original or repaired value?
"Why has there been no offer of adjustment to the insured who probably only wants to keep the paintings that might have hung in his Victorian grandmother's parlor, or some other such sentimental reason. Where is the good faith in this transaction? No wonder insurance companies' clients mistrust them. I can hear the conversation now: 'And you know, the —— insurance company declared the paintings worthless, total losses and a waste of money to repair but they wouldn't let me keep them!'"
Thanks Bob, Clayton and Marshall for joining in the debate. Youve got great comments. Keep looking here and at the "Question of the Week" on the FC&S Web site (http://fcs.nuco.com) for more interesting, even intriguing, and often arguable FC&S Answers.
Bruce Hillman, JD, is Editorial Director of Risk and Insurance Markets for the Professional Publishing Group of The National Underwriter Company, in Erlanger, Ky. Questions and comment are invited at fcs@nuco.com.
Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, June 29, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.
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