U.S. GOVERNMENT ARTS & ARTIFACTS INDEMNITY PROGRAM

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2 IMUA STATEMENT The Inland Marine Underwriters Association [IMUA] is a not-for-profit trade association focused on the commercial inland marine line of business. IMUA was organized in 1930 as a national trade association and rating bureau for all inland marine classes. In 1948 the rating bureau activities of the IMUA were transferred to the Inland Marine Insurance Bureau (now defunct) due to the 1944 US Supreme Court decision in the South-Eastern Underwriters Association case. Today, IMUA is comprised of -- Members - insurance and reinsurance companies that underwrite a significant portion of the commercial inland marine insurance in the U.S. Associate Members - companies or organizations that provide products and/or services to the insurance industry. IMUA is committed to advancing the educational, governmental, regulatory and technical interests of the commercial inland marine insurance industry. One of the services IMUA provides its members is the publishing of information for use by underwriters, loss control and claims specialists, and other interested parties. The topics covered by IMUA Reports, Bulletins and News Articles are intended to provide an overall awareness of the issues, hazards and exposures associated with a specific industry or inland marine class of business. Volunteer members of a technical committee of the IMUA or IMUA staff have produced this information. Committee members abide by antitrust restrictions while compiling information. It is generally not possible to treat any one subject in an exhaustive manner, nor is it IMUA s intent to do so. No warranties are made regarding the thoroughness or accuracy of the report or any part of it. Nothing in this report should be interpreted as providing definitive guidance on any question relating to policy interpretation, underwriting practice, or any other issues in insurance coverage. IMUA does not prescribe to its members how to make underwriting or claims decisions, nor does it require that analysis follow any particular format. IMUA offers thanks and appreciation to the Arts & Records Committee at-large and the following individual for his contribution to this paper: Paul Fritsch Chubb

3 TABLE OF CONTENTS INTRODUCTION 1 BACKGROUND 1 INTERNATIONAL INDEMNITY PROGRAM 2 DOMESTIC INDEMNITY PROGRAM 3 OBJECT ELIGIBILITY 3 KEY DEFINITIONS 3 DEDUCTIBLE 4 HOW COMMERCIAL INSURANCE INTERFACES 5 APPLICATION PROCESS 6 REFERENCES 7

4 INTRODUCTION One important aspect of any museum s mission is allowing public access to view their collection. This access permits present and future generations to enjoy the educational and cultural value of the collection. Accessibility is enhanced when artwork is included in exhibitions that travel to different venues, whether domestically or abroad. This allows more people to see the works of art than would be able to see it if kept at its original institution. However, when artwork goes on tour, there are additional costs involved that may not be available in a museum s budget. Cost of packing and shipping; storage costs; payroll for employees and/or temps hired; insurance, etc. all need to be considered. If costs are too high, then art can t go on tour, and part of a museum s mission - making art accessible to the public - is unfulfilled. The purpose of this paper is to inform underwriters and other interested parties what the U.S. Congress has done to assist cultural institutions to minimize the costs of exhibitions, in particular with respect to the insurance element of putting together traveling exhibitions. BACKGROUND In 1975, the U.S. Congress created the U.S. Government s Arts and Artifacts Indemnity Program. The administrative functions of the program were given to the National Endowment for the Arts (NEA) which in turn was working on behalf of the Federal Council on the Arts and the Humanities (FCAH). The NEA is a public agency dedicated to supporting excellence in the arts, both new and established; bringing the arts to all Americans; and providing leadership in arts education. Established by Congress in 1965 as an independent agency of the federal government, the NEA is the largest national annual funder of the arts, bringing great art to all 50 states, including rural areas, inner cities, and military bases. The coverage provided under the program is basically free of cost to the museum once the exhibition receives approval for indemnification. From the time of its inception, the program has covered nearly 900 exhibitions, saving the exhibition organizers more than $230 million in estimated insurance premiums. 1

5 The Arts and Artifacts Indemnity Act (P.L. 94-l58), as amended, authorizes the FCAH to make indemnity agreements with individuals, non-profit, tax-exempt organizations and governmental units for: 1. Eligible objects from outside the United States while on exhibition in the United States; 2. Eligible objects from the United States while on exhibition outside the U.S., preferably when part of an exchange of exhibitions; 3. Eligible items from the United States while on exhibition in the United States if the exhibition includes other eligible items from outside the United States which are integral to the exhibition as a whole, and, the latest amendment; 4. Eligible items from the United States while on exhibition in the United States. The indemnity agreement is backed by the full faith and credit of the United States. In the event of loss or damage to an indemnified object, the FCAH must certify the validity of the claim and request Congress to authorize payment. INTERNATIONAL INDEMNITY PROGRAM The original purpose of the Indemnity Program was to minimize the cost of insurance on international exhibitions. The program provided coverage for loans to the United States from other countries or for loans from U.S. institutions to museums abroad. But it did not allow for indemnification of artwork from American museums that were included in international exhibitions traveling in the U.S. This changed in 1995 when the program dropped this restriction. Thereafter, institutions applying for indemnification under the program could obtain coverage for domestic loans as long as the foreign loans were of integral importance to the exhibition. The international program allows coverage for a single exhibition up to $1,800,000,000. The total dollar amount of all indemnified exhibitions at any one time cannot exceed $15,000,000,000. Guidelines and applications for international indemnity are available at Examples of indemnified exhibitions include - Ink and Gold: The Art of Kano at the Philadelphia Museum of Art (PA) Tête-à-tête: Three Masterpieces from the Musée d'orsay at the Norton Simon Museum of Art (Pasadena, CA) In Bloom: Painting Flowers in the Age of Impressionism at the Denver Art Museum (Denver, CO) Miró: The Experience of Seeing at the McNay Art Museum(San Antonio, TX) International Pop at the Walker Art Center (Minneapolis, MN). 2

6 DOMESTIC INDEMNITY PROGRAM In December 2007, President Bush signed legislation amending the Arts and Artifacts Indemnity Act to establish the domestic indemnity program. This legislation allows for indemnification of works of art owned by U.S. institutions while on exhibition in the U.S. The domestic program authorizes a total amount of coverage available for all exhibitions taking placing at any one time of $7.5 billion, with a maximum indemnity of $1 billion for a single exhibition. The total value of an exhibition must be at least $75 million to be eligible for coverage. The domestic program will operate parallel to the international program, with two application deadlines per year, and review by the advisory panel of museum professionals, with final decisions made by the FCAH. Guidelines and applications for domestic indemnity are available at OBJECT ELIGIBILITY Eligible objects include art works, other artifacts or objects, rare documents, books and other printed materials, photographs, films, and videotapes. Such objects must have educational, cultural, historical, or scientific value, and in the case of international, the exhibition must be certified by the Secretary of State s designee as being in the national interest. For reasons of risk, the FCAH is generally opposed to indemnifying oil on copper paintings, pastels, lacquer objects, certain types of glass (including enamels), works on parchment or vellum, marquetry, frescoes, and other fragile objects. Oversized works and oil on wood panel paintings will be reviewed on a case by case basis. Oil on single wood panels larger than two feet by three feet will not be indemnified. KEY DEFINITIONS The following are key definitions that are important to underwriters seeking to understand the Indemnity Act - Exhibition means a public display of an indemnified item(s) at one or more locations, as approved by the Council, presented by any person, nonprofit agency or institution, or Government, in the United States or elsewhere. On Exhibition means the period of time beginning on the date an indemnified item leaves the place designated by the lender and ending on the termination date. 3

7 Indemnity Agreement means the contract between the Council and the indemnitee covering loss or damage to indemnified items under the authority of the Arts and Artifacts Indemnity Act. Indemnitee means the party or parties to an indemnity agreement issued by the Council, to whom the promise of indemnification is made. Participating institution(s) means the location(s) where an exhibition indemnified under this part will be displayed. Termination date means the date thirty (30) calendar days after the date specified in the Certificate of Indemnity by which an indemnified item is to be returned to the place designated by the lender or the date on which the item is actually so returned, whichever date is earlier. (In museum terms this means wall-to-wall coverage.) After 11:59 p.m. on the termination date, the item is no longer covered by the indemnity agreement unless an extension has theretofore been requested by the indemnitee and granted in writing by the Council. DEDUCTIBLE The program applies a deductible to each exhibition (not per object). Insurance coverage for this deductible may be purchased from the commercial insurance market. The amount of the deductible depends on the total value of the exhibition and whether it is indemnified as an international or domestic event. International If the value of items covered by an international indemnity agreement for a single exhibition is: 1. $2,000,000 or less, then coverage under the Indemnity Act extends only to loss or damage in excess of the first $l5, 000 of loss or damage to items covered. 2. More than $2,000,000 but less than $l0, 000,000 the first $25, Not less than $l0, 000,000 but less than $l25, 000,000, the first $50, Not less than $l25, 000,000, but less than $200,000,000, the first $l00, Not less than $200,000,000, but less than $300,000,000, the first $200, Not less than $300,000,000, but less than $400,000,000, the first $300, Not less than $400,000,000, but less than $500,000,000, the first $400, $500,000,000 or more, the first $500,000. Domestic If the value of items covered by a domestic indemnity agreement for a single exhibition is: 4

8 1. $75,000,000 or more, but less than $125,000,000, coverage under the Indemnity Act extends only to loss or damage in excess of the first $50,000 of loss or damage to items covered. 2. More than $125,000,000, but less than $200,000,000, the first $100, Not less than $200,000,000, but less than $300,000,000, the first $200, Not less than $300,000,000, but less than $400,000,000, the first $300, Not less than $400,000,000, but less than $500,000,000, the first $400, $500,000,000 or more, the first $500,000. HOW COMMERCIAL INSURANCE INTERFACES This program may not provide full indemnification for all of the art objects included in an exhibition. In those instances, the organizing institution will have to decide if they will self-insure the values not indemnified or use commercial insurance to provide the necessary coverage. The following represent the areas where commercial insurance could play a role in the indemnification process. First, the type of object may not be eligible for program consideration. The FCAH is generally opposed to indemnifying oil on copper paintings, pastels, lacquer objects, certain types of glass (including enamels), works on parchment or vellum, marquetry, frescoes, and other fragile objects. Oversized works and oil on wood panel paintings will be reviewed on a case by case basis. Oil on single wood panels larger than two feet by three feet will not be indemnified. High valuation of individual objects may also provide an opportunity for commercial insurance. The FCAH may not allow indemnification for the full value submitted. For example, the application may list a value of $2,000,000 for a particular painting. But the FCAH may only agree to indemnify up to $1,500,000 for this particular item. In that case, the exhibition organizer would need to secure insurance for the remaining $500,000 valuation on this object. Insurance will likely be required if the total value of the exhibition is greater than the value allowed under the indemnification program. For international exhibitions, coverage for a single exhibition is capped at $1,800,000,000. For domestic exhibitions, the per exhibition limit is $1,000,000,000. So, as an example, if the total value of an international exhibition is $2,600,000,000, then commercial insurance would be required for the excess of $800,000,000 in valuation. In addition, the total of all indemnified exhibitions at any one time will affect eligibility and approval of the application. For all domestic exhibitions, the total dollar amount of indemnity agreements which can be in effect at any one time is $7,500,000,000. For all international exhibitions, the total dollar amount of indemnity agreements which can be in effect at any one time is $15,000,000,000. If these limits are reached, then any additional exhibitions would not receive indemnification under the program, and commercial insurance would be required. 5

9 The program applies a deductible to each exhibition. Insurance coverage for this deductible may be purchased from the commercial insurance market. The amount of the deductible depends on the total value of the exhibition and whether it is indemnified as an international or domestic event. APPLICATION PROCESS Organizations interested in seeking indemnity must submit an application for review by the Indemnity Advisory Panel and the FCAH which we understand is quite rigorous. Some of the requirements include - The applicants must have previously organized an international exhibition and participating museums must have previously hosted at least one museum quality exhibition. The exhibition may not be the first held in a new or substantially renovated building. Storage locations must be preapproved. Packing, shipping and security arrangements must be approved in advance. Values need to be assessed by experts other than members of the applicant s institution professional staff. All shipments must be accompanied by a courier. The certificate indemnifies against all risks of physical loss or damage from any external cause except normal wear and tear, inherent vice or damage sustained due to or resulting from any repairing, restoration or retouching process. This coverage is generally broader than commercial insurance and includes war, nuclear and terrorism. The certificate also has various provisions including - Claims payment procedures, including examination under oath Appraisal procedures Indemnitee responsibilities Security Provisions Condition Reports Sue and labor, Subrogation and Loss Buy-back provision Pair and Set Clause Collection from Others 6

10 REFERENCE Copies of the Arts and Artifacts Indemnity Act, the Federal Rules and Regulations, and the Certificate of Indemnity may be found at the following links: International Indemnity Program: Domestic Indemnity Program: 7