Art title insurance can help hedge against an uncertain past By CharlesanaTbomas Danziger as one of our smarter clients once observed, the problem with the future is that its hard to predict. This is particularly true in the art world, where uncertainty regarding ownership of works of art can be extremely damaging, and where a title dispute can result in huge legal expenses. On the bright side, this is one reason we have such nice offices on Park Avenue.

Defective title is especially problematic in the U.S., because the law here holds that the thief of a work generally cannot pass good title to a purchaser. This means that unwitting buyers of stolen goods often end up surrendering the art without any compensation. And since there is no official governmental registry of title to artworks that would clearly show who owns a given piece —like, say, the land records maintained by all states —would – be art buyers have traditionally had to rely on their own due diligence to avoid disaster, with predictably mixed results.

To address this thorny problem and others caused by title defects, Aris Title Insurance Corporation has been selling art title insurance since 2006. Aris, which was bought by Argo Group in 2010, covers the legal costs of defending a title dispute and compensates holders if they lose an ownership dispute. The company charges a onetime premium, paid upfront, whose amount depends on the covered works provenance risk profile and value.

Aris was not the first to dip a toe in the art title insurance pool. According to Dorit Straus, worldwide specialty fine – art manager at the Chubb Group of Insurance Companies, Chubb offered art title insurance from 1982 to 1985 but withdrew it because of little demand. Instead, Chubb now offers all – risk fine – arts coverage that reimburses policyholders for legal costs up to $100,000 in the event of a title dispute involving a scheduled artwork. It will not, however, reimburse owners for the value of pieces they have to forfeit, and it is not valid in certain states.

Art title insurance differs in one fundamental respect from the casualty, property, and liability insurance offered by traditional insurers: While the latter covers the risk of a loss occurring after the effective date the policy is issued, art title insurance covers defects that occurred in the past, before the policy is issued. It is most comparable to real – property title insurance, which buyers obtain with commercial and residential real – estate purchases and with all real – estate bank loans.

Before issuing a policy of title insurance, Aris verifies an artworks chain of ownership using what it says is a proprietary process and database. This type of research has traditionally been done by independent experts, often in cooperation with attorneys. Professionals who perform this type of due diligence generally begin with the best – known independent database of missing and stolen works, the Art Loss Register, and also check public records for liens. They analyze bills of sale, probate records, past auction catalogues, and other historical records and may consult with art historians, archivists, biographers, and connoisseurs here and abroad to track.