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29 June 2021

Title Protection Insurance; Caveat Emptor

Art installation

Living in the modern world we are afforded the benefits and protections that come with modern life. When you buy a computer or a smartphone you expect certain rights to come along with that purchase – that your newly acquired device be free of defect, and that any defects that do exist will be repaired or replaced via a warranty.

However, when it comes to Art, there exists a much murkier situation. While consumer protection laws are in place, it is an unfortunate truth that the art world operates with opacity, and often has ties to nefarious agents, or actors, who are merely using art and collectables as a means to amass a fortune, or facilitate criminal schemes.

According to Art Basel, Billions of dollars’ worth of art changes hands each year – with virtually no public record existing to chronicle these transactions. Buyers rely on the honesty and reputation of the dealers and auction-houses they are purchasing from, while sellers generally do not investigate who is obtaining the works being sold. Globally, there are very few regulations or laws tracking the sale of art, and the individuals, businesses, and groups involved in the art market.

In some cases, you (as a collector) may assume that purchasing an item from a reputable dealer or auction-house will protect you from the nefarious activities in the art world. For the most part you would be correct, but purchases from galleries and auction houses carry their own risks. Whether you have purchased an item which was originally stolen, or a work which is an outright forgery, there are very few guarantees when it comes to amassing a collection – which causes a concern.

If you have paid a lot of money for an item from a dealer, and the item turns out to be stolen (or illegally acquired) and you are subsequently forced to relinquish the item, you’re likely going to be facing a loss. That is, if you don’t have Title Protection Insurance.

Title Protection Insurance

Title Coverage is a form of protection found on most Art and Collections insurance policies, but can also be obtained under some Hong Kong Home Contents Insurance plans. Title insurance protects you by

Reimbursing you for the amount you have paid to purchase an item that you are subsequently required by law to relinquish due to:

  • Vendor’s defective or lack of title for the item purchased
  • Charges or encumbrances placed on the item prior to purchase, of which you were unaware

In addition to this Title Defect Insurance will also often cover Legal costs incurred by the policyholder in defending any action brought against the policyholder in respect of a defective title, or lack of a title claim.

In many cases this insurance coverage will only protect you against title defects stemming from purchases made at a credible (or reputable) auctioneer or dealer. As such, and for the benefit of illustration, many of the “antique” stores on Hollywood Road would not be considered to be reputable dealers and would not fall under the coverage provided by Title Insurance.

Frauds, Fakes, and Forgeries

Art and Crime often go hand in hand. After all, art and collectibles are generally expensive, easily transported, and can be sold in a highly unregulated market. But when it comes to buying items to add to your collection, there is also the major issue of frauds, fakes, and forgeries.

According to the Fine Arts Expert Institute (FAEI), roughly 70 to 90 percent of all art sold globally is fake. This means that there is a very good chance that the works you are considering purchasing are fakes. The 2016 documentary Sour Grapes examined fraud in the wine market, where a fraudster successfully sold tens of millions of dollars of fake wine before eventually being caught. This prevalence of fraud isn’t just contained to elite buyers – regular collectors are also frequently the victims of fraudsters.

Online Auction Houses proclaiming to be the purveyors of genuine ancient and historical artifacts are often anything but, and the “experts” being paid to authenticate these items are only doing so for the benefit of their bank accounts (rather than any sort of academic integrity). A naive buyer purchasing from such a location may not be aware that the Sassanian Button Cup is not from the 6th century AD, but rather a 21st century reproduction.

Even experts are not immune from buying fakes. We need only look at the case of the world famous Knoedler Gallery, which sold forged abstract expressionist paintings and eventually closed following the scandal. Buying artworks, or adding to your collection, even from a reputable and credible dealer is no guarantee that the piece you have acquired is genuine – of even that it will stay in your collection.

Protect your collection and your bank account

Whether you are buying a Matisse painting from a globally renowned auction house, a meteorite from a private collector, or a bottle of wine, when it comes to the world of collecting just getting started carries a risk. Unless you are an expert (and even then, you’re not immune) in the items you are collecting you are running the risk of acquiring an item that may not be exactly be what was advertised. Even worse, depending on the collection, you run the risk of having your acquisitions taken away.

From art stolen in World War II and more recent thefts, to items being used for criminal endeavors like money laundering or terrorism financing, because of the muddled waters present in the art world, it is often impossible to guarantee where any given item actually came from. Was your acquisition stolen by British troops in Ethiopia during 1868, or was it a cultural item looted during WWII, or a native artifact that should now be returned? Because the provenance of many old and valuable pieces cannot be authenticated, there is always the risk that as the current custodian of the piece you may lose possession of it.

If you are the owner of a collection that you would like to protect, or if you would simply like to investigate your Home Contents insurance options, please Contact Us today to arrange a no-risk, no-obligation consultation with an expert CCW Global insurance broker.

About Author

Michael Lamb is an insurance industry professional with many years of experience within the Hong Kong Insurance market. Focusing on APAC coverage issues, Michael is able to provide extensive analysis and insight to a range of pressing topics. Previously, Michael provided insurance broker Globalsurance.com with their most highly valued articles and was a key influence in the development of all the content on Pacificprime.com, Michael has a passion for insurance matched by few others in the region.

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