Notes on a book from our Reference Library:
The Law and Practice of Fine Art, Jewellery and Specie Insurance
Cheltenham: Edward Elgar, 2021.
Insurance on rare and antiquarian books is an important consideration for collectors, institutions, and dealers. In a recent conversation with an insurance broker specializing in the rare book market, he estimated that only 65% of established rare book dealers carry insurance. Numerous insurance carriers are pulling out of California’s insurance market due to wildfire risk.1 Insurance in California is available, but more expensive than it used to be. Several dealers report insurance increases of 20–30%, and even up to 50% with their latest renewal. Current ballpark insurance rates in California are 50 cents/year of total combined retail value with minimum annual premiums of $3,000, $3,500, or $5,000 depending on the carrier. 2
But what is the benefit of the bargain? To answer that question under US and UK law, I can recommend David Scully’s new book on fine art insurance. Comprehensive, yet easy to read he starts out explaining the history and current form of the “FAJS” (Fine Art, Jewelry & Specie) market.3 Then he walks us through various standard form “fine art” insurance contracts with lively examples of heists, forgeries, natural disasters, and anything else you can think of that may befall our treasured objects. There are a few examples involving rare books, although as usual, we play second fiddle to the more glamorous art market.
A painting entitled Salvator Mundi sold at auction in April 2005 for $1,175. In November 2017, after cleaning and restoration and Christie’s reattribution of the painting to Leonardo da Vinci, Salvator Mundi became the most expensive artwork ever to sell at $450.3 million.4 With this fantastic lead, Scully starts his chapter on professional liability of auction houses. The vast penumbra of risks that could befall us makes for an interesting read, provided we can enjoy the stories from a healthy distance.
David Scully was an underwriting manager with AXA Art Insurance and his viewpoint is that of an insurance industry insider. This allows for unusual insights on how insurance companies attempt to reduce their risk of moral hazard (for example, an insured organizing the theft of his own books to obtain an insurance settlement). The most practical chapter in the book is the one on “BOS” (Basis of Settlement) – a detailed overview on how insurance companies calculate claims.
It is a good book and well worth reading for anyone collecting or dealing in rare books; unfortunately a little pricey. The publisher currently offers discounts for direct orders.
1. In California, and 13 other US states, it is not possible to write a property insurance contract that does not cover fire risk (so called “US fire states”). A carrier’s only option is to exit the entire state market. Scully, p. 50.
2. Is it worth the cost? A bedeviling question not answered by Scully’s book. I suggest the answer lies in our antiquarian books on math and science. A dealer’s profit is finite; risk, however, is infinite. The arithmetic cost of an insurance contract can be more than offset by its geometric effect on future income (in the event of a loss, an insurance payout allows one to “start over”, which has an impact on a dealer’s profitability not only in the year of loss but also in all subsequent years). Pythagoras (c. 570 – c. 495 BC) discovered the distinction between arithmetic and geometric means. Daniel Bernoulli (1700–1782) first applied the concept to the measurement of risk. For a modern-day overview, see Mark Spitznagel’s book Safe Haven (Hoboken: Wiley, 2021).
3. In case you are wondering, “specie” refers to gold, silver & platinum. It’s good to know that from an insurance category perspective our rare books are on par with gold.
4. Attribution of Salvator Mundi to Leonardo da Vinci is controversial. Mysteriously, the current location and current owner of the world’s most expensive painting is unknown.