WCM Defeats Claim For Title Coverage Under Fine Arts Dealer Policy

In a matter of first impression, WCM convinced the New York Supreme Court that a fine arts dealer all-risk policy does not provide coverage for defective title, notwithstanding the fact that the policy was silent in respect of defective title, and a very sympathetic plaintiff.

Jasper Johns is an iconic American artist who had the misfortune of having a criminal as his trusted studio assistant.  Between 2006 and 2012, James Meyer stole several works of art from Johns and secretly sold the stolen works to various art galleries and collectors under contracts prohibiting buyers from selling or publicly displaying the works for seven years or until the artist died.  Meyer explained this odd condition by telling prospective buyers he received the art as a gift and that he would be embarrassed if Johns found out he was profiting off the artist’s generosity.  At his sentencing, Meyer expressed regret for his actions for betraying his mentor.

But Jasper Johns was not Meyer’s only victim.  The galleries buying those stolen pieces were also victims.  One such victim was the plaintiff in DAE Associates, LLC d/b/a Danese Gallery v. AXA Art In. Corp. et al.  In DAE, the plaintiff was the owner of an art gallery who, in 2010, was approached by an intermediary claiming to have Untitled, 2002-2005, Acrylic on paper, 37 ¼ x 30 inches, by Jasper Johns, for sale.  He was told that the work was available on the condition that they eventual buyer keep the work private and not to loan or sell the work for seven years, or unless Jasper Johns passes away.  Like the gallerists who preceded him, the plaintiff was told that the work was a gift.

After being told the work was available, the plaintiff found a couple willing to buy the work, and sold the work to the couple for $825,000.  In the contract with the couple, the plaintiff warranted that he had marketable title to the work and promised to rescind the sale and refund the purchase price if title proved to be defective.  Three years later, the couple was approached by an FBI agent who informed them that the Jasper Johns hanging in their house was stolen.  After returning the work to its rightful owner, the couple sued the gallerist for breach of contract.  That suit, styled Perry and Donna Golkin v. DAE Associates, LLC d/b/a Danese Gallery, is currently pending in the New York Supreme Court.

In DAE, the gallery sued AXA seeking coverage under its Fine Art Dealers All-Risk policy, which provided coverage for all risks of loss or damage to insured property except as otherwise excluded.  The plaintiff argued that he suffered a loss, that the policy did not use the word “physical” and that defective title was not excluded under the policy.  AXA disagreed, and argued that the artwork, which was the insured property, suffered no loss and that the plaintiff’s loss was a purely financial one which flowed from a simple breach of contract.

AXA also argued that New York Insurance statutes recognize title insurance as a separate product and that it was not even permitted to write title insurance under New York law.  This argument was supported by the plaintiff’s admission, during his pre-suit examination under oath, that he was aware of a separate product called title insurance, but that it was an expensive product.

Based on these arguments, AXA filed a pre-answer motion to dismiss.  After the motion was fully submitted and oral arguments made, the Honorable Jeffrey K. Oing agreed with AXA and ruled that there was no coverage under the policy.  According to Judge Oing, although the plaintiff suffered a monetary loss, he did not suffer a covered loss because there was no loss to the insured property itself, the stolen Jasper Johns work.

DAE is significant because it provides insurers with reassurance that their fine arts dealers all-risk policies cannot be transformed into title insurance based on the mere fact that defective title is not mentioned in any exclusion.

AXA was represented by Dennis M. Wade and Michael A. Gauvin of Wade Clark Mulcahy.  If you have any questions, please email Dennis at dwade@wcmlaw.com.