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Chubb Insurance reminded us in their recent newsletter that there is a fundamental difference between auction estimates and insurance appraisals. Under most collector policies, collections should be valued according to their retail replacement value, that is, what a buyer or collector would have to pay to replace a lost or damaged work in as short as time as possible. This value is calculated from the point of view of the owner who wishes to maintain a collection.

This can dictate where replacements may be obtained. Dealers generally have stocks of specialized items at most times. However they charge a premium to cover their rental and storage costs, and consequently one usually pays more for the convenience of immediate replacement: in fine arts, dealers' prices can frequently be twice as much as prices realized at auction; in decorative arts, they can sometimes be as high as three to four times auction prices.

On the other hand, auction estimates are calculated from the perspective of an owner who wishes to sell almost immediately, or how much the seller would receive at auction.

While auction prices can be lower, buyers must wait-sometimes years-for an appropriate piece to come up at auction, and items are frequently sold in an un-restored state, whereas dealer offerings are almost always restored.

For these reasons and others, collector insurance coverage based on auction estimates may prove insufficient to purchase replacements for lost or damaged works.

In addition, and insurance appraisal should include an appraisal report written in conformity with USPAP. (See our Common Insurance Terms for details.)  

A sometimes sommelier who worked at upscale New York restaurants was recently accused of a four-week theft spree that authorities say netted a dozen artworks in Manhattan and San Francisco. These included "Sculpteur et Deux Têtes" by Picasso valued at $30,000 and a Léger, "Composition aux Elements Mécaniques", dating from 1917, and reportedly worth $350,000.

Police raided his home, a nondescript apartment in Hoboken, NJ, and turned up works that had been stolen from hotels and galleries. There is no sign that he intended to sell any art. The police say he displayed his acquisitions in his apartment - his own private gallery.

It appears the thief made little effort to evade detection. In most of the thefts, he just walked into the gallery and took the target artwork off the wall. He was recorded by security cameras on several occasions. In at least one case, his getaway car was simply a taxi.

-New York Times, July 15, 2011

This case is a reminder that it's difficult to predict who will become an art thief. Certainly most art thieves are not extremely sophisticated professionals as typically depicted in films. And unfortunately, it's also a reminder that many galleries still have very limited security systems in place.