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First Department Gives WCM a Unanimous Victory in Art World Title Controversy

February 16, 2018

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<p style="text-align: justify;">In a matter a first impression certain to benefit art insurers everywhere, New York’s Appellate Division, First Department unanimously agreed with WCM’s argument that a fine arts dealer all-risk policy insuring against loss or damage to works of art does not provide coverage for defective title.  In <em><a href="">DAE Associates, LLC</a> v. AXA Art Ins. Corp. et al.</em>, the plaintiff, an innocent art gallerist, fell victim to a scheme perpetrated by an infamous thief, now convicted felon, James Meyer.</p>
<p style="text-align: justify;">For 26 years, Meyer was the trusted studio assistant of iconic American artist, Jasper Johns.  Between 2006 and 2012, Meyer stole a number of artworks from Johns and then sold them to unsuspecting gallerists and collectors on condition the buyers could not sell or display the works for seven years, or sooner if Johns died.  To make the curious caveat plausible, Meyer explained this proviso, telling the buyers the art was gifted from Johns and he would be embarrassed if Johns discovered the sale.</p>
<p style="text-align: justify;">In 2010, the plaintiff, Danese, was approached by an intermediary claiming to have <strong><em>Untitled, </em></strong>2002-2005, Acrylic on paper, 37 ¼ x 30 inches, by Jasper Johns, for sale.  As with other victims of Meyer’s scam, he was told the work was available on the condition the eventual buyer keep the work private and not sell or loan the work for seven years or until Johns died.</p>
<p style="text-align: justify;">After finding a couple willing to buy the work, Danese bought the work and then sold it to the couple for $898,218.75.  In the contract of sale, Danese warranted he had marketable title to the work and agreed to rescind the purchase price in the event title proved defective.  Three years after the sale, the FBI visited the couple to report the Johns hanging in their home was stolen.  After returning the work to Johns, the couple sued Danese under the contract for a refund of the purchase price.</p>
<p style="text-align: justify;">Faced with a lawsuit for a refund of the sale price, Danese sued AXA for coverage under his Fine Arts Dealers All-Risk policy.  That policy afforded coverage for “all loss or damage to insured property.”  Danese argued coverage existed because he suffered a loss; the policy did not use the word “physical” to modify the words “loss or damage;” and, the policy did not contain an exclusion for defective title.  AXA disagreed, arguing no coverage existed because there was no loss to the artwork itself; the plaintiff’s loss was purely financial, flowing from a simple breach of contract; and, to find coverage would effectively transform the all-risk policy into a title insurance policy, which Danese knew was a separate and more expensive product.</p>
<p style="text-align: justify;">After Judge Oing, then a Justice of the New York Supreme Court, granted AXA’s motion to dismiss, Danese appealed to the First Department.  In opposition, WCM presented the issue before the court as follows:</p>
<p style="text-align: justify;"><em>Renato Danese, with a number or other intermediaries, brokered the sale of a stolen work of art, Untitled, 2002-2005, by Jasper Johns to Perry and Donna Golkin for $898,218.75.  Those sale proceeds were divided among the intermediaries, with $175,000.00 going to Danese.  In his written contract with the Golkins, Danese agreed to refund the full $898,218.75 sale price if title proved defective. After the FBI seized the stolen work, Renato Danese turned to AXA, requesting indemnity for the full $898,218.75 sale price of the stolen work.  Danese did so even with an admitted awareness that he did not have title insurance for such reimbursement.  Judge Oing properly found that there was no fortuitous loss of the work itself, but ruled the loss arose from a purely financial transaction:  Danese’s breach of the Golkin sales contract.  Under these circumstances, should Judge Oing’s decision be disturbed?</em></p>
<p style="text-align: justify;">Earlier this week, the First Department unanimously answered that question with a resounding “No,” and ruled that “[t]he all-risk policy at issue, which covered insured property for ‘all loss or damage to insured property,’ did not apply to plaintiff art gallery's contractual liability to purchasers of stolen artwork that was returned to its rightful owner.”  In doing so, the court accepted WCM’s argument that “[d]efective title is clearly not a physical loss or damage….from any external cause” and that “[d]espite the fact that the phrase ‘loss or damage’ in the policy was not qualified by terms such as ‘direct’ or ‘physical,’ [w]e may not, under the guise of strict construction, rewrite a policy to bind the insurer to a risk that it did not contemplate and for which it has not been paid.”</p>
<p style="text-align: justify;">Today’s decision is a significant victory for art and title insurers everywhere.  By recognizing “[i]t is not reasonable to interpret a policy so broadly that it becomes another type of policy altogether,” the First Department provided assurance to art insurers that they will not be forced to pay title claims they never agreed to insure.  And title insurers may now take comfort in a ruling that refuses to undermine their market by transforming occurrence-based policies into something they are not.</p>
<p style="text-align: justify;">AXA was represented by Dennis M. Wade and Michael A. Gauvin of Wade Clark Mulcahy, with Dennis arguing the matter before the First Department.  If you have any questions, please call or email Dennis at <a href=""></a>.</p>


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