A case involving one of his damaged prints reminded me of the delicate balance between the roles of underwriting and claims. Underwriting's role is to weigh risk and then issue policies accordingly, preferrably when elements are favorable. Underwriting determines which policies will be written, while claims manages the consequences. The claims department handles losses that occur based on the terms and conditions of the policy in force.

In this instance, the insured's print was part of an edition of the largest size available, which totaled 200 prints. These were sold framed for approximately $15,000. In addition to this standard edition, there is also an “artist proof” edition of 20 in this size, priced substantially higher, in the mid $30,000 range. To complicate matters, there are additional editions in various, smaller-sized formats of this same image.

When this policyholder approached the gallery for a “current” replacement value in order to schedule his photograph with his insurance carrier, he was in for a surprise. Staff informed him that prints like his—from the edition of 200—were completely sold out, except for print 1/200. The photographer makes it a practice to retain print #1 of all of his images. The gallery indicated print #1 was available for just over $230,000. The underwriter accepted this letter and scheduled the insured's photograph for nearly a quarter of a million dollars.

Now think about it. With 200 prints, at an initial cost of approximately $15,000 each, the entire edition sells for $3 million. If each of the 200 print owners each secured coverage based on the gallery's asking price of print #1, the “value” of this 200 print edition balloons to $47.5 million.

What Happened Next

The insured's print fell off the wall and incurred damage. The artist's gallery would not assist with a repair or agree to produce a replacement print, stating that doing so would be contrary to the photographer's guarantee to collectors of his works.

Our contents consultant found the artist's gallery still had one of the 20 “artist proofs” of this image, a more costly print compared to the insured's damaged print, but nevertheless available for $33,000. Despite the methodical research, underwriting had issued an “agreed value” policy, which required that claims essentially write a check for $230,000+ and “call it a day.”

Would the outcome have been different, were a “stated value” policy in place? With a “stated value” policy, the value is not agreed when writing coverage. Rather, value is determined at the time of the loss. Had such coverage been extended to the insured's artwork in this case, I suspect the correct number would have been around $15,000.

So what is the moral of this case? Always know exactly upon what you are agreeing.