Title Insurance Expert Lawrence Shindell on The Value of Assuring Clear Legal Ownership of Your Art
Lawrence Shindell is executive chairman of ARIS Title Insurance Corporation, a member of Argo Group International Holdings, Ltd. (NASDAQ: AGII). He regularly advises, speaks and writes internationally on the legal title risks inherent in the global art and collectibles market for a spectrum of industry stakeholders that range from individual collectors to institutional, regulatory and capital markets. A lawyer by profession, he holds licenses in a number of U.S. jurisdictions including admission to the Bar of the Supreme Court of the United States. We spoke with him about the value of assuring clear legal ownership of your art.
What is the overarching reason why a collector should seriously consider securing a third-party insurer’s guaranty of ownership for that collector’s artworks?
Assuring clear legal ownership for your art, or art you wish to buy or sell, is no luxury item. Collectors in today’s global art world should consider securing a third-party insurer’s guaranty of clear legal ownership of their artworks, just as they insure through title insurance the ownership of the homes they buy. Collectors who run companies address this same issue in their M&A transactions, where they always assure that purchased assets are free and clear of any claims. While nobody in the art world thinks that title risk will strike them, the art market gives us daily news from around the world that legal title or ownership risk is real and pervasive. Importantly, the issue is not just about how a given collector (or his or her dealer or advisor) assesses the title risk of an artwork on the date of purchase. The issue is often as much or more about how counterparties will perceive this risk when it comes time to sell, donate or use the art as collateral for a loan, or to transfer the art to a foundation or other tax-based structure as part of estate planning, where fiduciaries are typically involved.
In what specific ways does mitigating title or ownership risk help individuals and groups in the global art and collectibles market?
Taking measures to mitigate title or ownership risk helps you in five ways:
1. You can make sure you actually own and can enjoy the art you buy. Smart, proactive collectors make title insurance a standard part of their purchase negotiations. Doing so mitigates both economic and reputational risk. Using title insurance helps to assure that collectors will not become embroiled in a transaction that goes awry – for instance, where a consignor has not been paid for an artwork that was not actually dealer owned-inventory and the consignor tries to claw-back the artwork.
2. You can make sure you do not create liability for yourself or your family when it is time to sell. It is one thing to say “to the best of my information and belief” that an artwork does not have a title problem. It is quite another to guarantee in absolute terms that the artwork presents no title problem, particularly for artworks which have any history predating the current ownership. Collectors and dealers, when they buy, can never be certain of the historical status of legal title to an artwork because of the non-transparent nature of the art industry. There is always some degree of unknown –even when buying directly from a living artist – which is why insurance for this kind of risk exists in the form of a third-party insurer’s guarantee.
A title insurer with regulated privacy obligations is able to serve as a safe-harbor to create transparency of the transaction, which benefits both the seller and the buyer. This role helps to get done efficiently any well-intended transaction where neither party believes in good faith that a title problem exists, but they know that they cannot be sure of this given the nature of the art industry and want legal certainty.
3. You make it easier and less expensive to use art as collateral for loans or to lend art for exhibitions. Incorporating a title insurer’s life-of-ownership guarantee of clear legal ownership of an artwork at the point of purchase makes it easier later to use the art in the market’s evolving monetizing strategies – for instance, using artworks as collateral for a loan or lending artworks to a museum for exhibition. No sophisticated financial lender or museum today can afford to take the chance that a pledged or loaned artwork has a hidden legal ownership issue that will create economic and reputational risk for them as well.
4. You can shore up your appraisals and valuations. Different art market stakeholders, including property insurers, rely on appraisals or valuations of artworks, but appraisals or valuations do not vet legal title. By industry standard, this issue falls outside the scope of this work. Even if a due diligence provenance assessment is given, appraisals ultimately assume and do not financially guarantee as a more complex matter that legal title of an appraised artwork is clear. If this assumption proves to be untrue, then the actual value of the appraised artwork (for the presumed owner) is zero.
5. You can manage “insurable interest” under property insurance policies. The question of who owns an artwork when the artwork is stolen in a burglary and is later recovered – often many years later after the property insurer has paid the theft loss – can be a legally and contractually complex one. A number of articles have been written on this one subject alone. Collectors who make it a habit to use title insurance in their art collecting should notify the title insurer of the burglary or theft of a title-insured artwork, advise the title insurer of who the property insurer is, and file a copy of the title insurance policy with their property insurer as part of their property insurance proof-of-loss.
What is the one take-away you, as an insurance professional, have for people or institutions that want to buy or sell art?
Good risk management when buying and selling art today should be viewed simply as a waystation in the pursuit of passion and investing in art. The complexity of questions of legal title or ownership increases every day in the art world and is broader than the art industry’s traditional focus on provenance. My one take-away for collectors is this: all these issues of legal ownership are manageable; they simply require and invoke new and proactive best practices by all those involved in art collecting.
(Deeper information on these subjects can be found in an article published recently by Museum Management and Curatorship. Broader reading on the complexities of today’s global art market can be found here.)