Protecting Your Art Investment With Title Insurance

When you buy a piece of art, can you ever really be sure it’s yours?

In the multi-million dollar art world, nothing is more important to collectors than protecting an art investment.

Issues arising from ownership of art can heavily affect an artwork’s value, and an investor’s legal authority to sell it.

Contrary to popular belief, approximately 75 percent of art ownership claims are due to general questions over the right to sell, and not to historical theft or Nazi-era restitution claims.

Everyone is aware of the issue of a gap in provenance between 1933 and 1945, or to the wave of national treasures smuggled out of certain countries in violation of national patrimony laws.

But more commonly felt is the effect of the secretive world of art transactions. It is understandable some buyers and sellers wish to maintain a cloak of anonymity with high ticket purchases. Unfortunately this lack of transparency, and unregulated art market, makes the trail of true title and ownership somewhat murky.

Title insurance, traditionally the preserve of real estate transactions, has oft been overlooked in the art world. But more art investors are now becoming wise to its merits in protecting ownership and provenance of valuable artworks.

Here’s what you need to know about title insurance, and how it can help minimise the risk of these challenges.

It ensures ownership. Art title insurance is the only way to prove you have total ownership of a piece and the full and complete authority to sell it on.

It is separate from an appraisal. Whilst an appraisal evaluates an artwork’s provenance, ownership interests and any encumbrances that might affect its value, it does not address the legal title of an appraised work. A clear legal title is only assumed as such by an appraiser in the absence of any investigation.

It is not just for older secondary market art. You cannot avoid issues of ownership by simply purchasing contemporary or primary market works. Even these can be encumbered by financial liens, disputes over failed payments for consigned artworks or undisclosed right-of-first-refusal clauses. In fact, there is great benefit in protecting the chain of title right at the very start of an artwork’s provenance, ready for when the collector wishes to sell.

It provides specialised protection. Many art collectors erroneously believe that their existing home insurance policy will underwrite legal title risk for artworks. However, only a licensed art title insurance company has the expertise to provide protection. Art title disputes are notoriously complex and property insurers cannot effectively insure against them.

It reveals the risks to selling. If a title claim arises, the current owner stands to potentially lose the artwork itself, their financial investment or be made to bear the brunt of hefty legal costs. Common risks to selling include issues of bankruptcy, creditor claims, inheritance disputes and gallery conversion cases.

It is becoming more commonplace. Private dealers are starting to use title insurance to protect the title of works – along with their reputation and revenue – when doing back-to-back transactions. Similarly, there is a growing trend for private museums to take out insurance, understanding the obvious benefit in protecting their collections.