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Top Court Refuses to Hear Appeal of WCM's Win in $25 Million Art Loss

May 8, 2013

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On May 7, 2013, New York’s highest court refused leave to appeal from the decision of the Appellate Division, First Department, unanimously affirming the trial court’s ruling that AXA Art Insurance Corporation was not obligated to indemnify Renaissance Art Investors LLC (RAI) for the loss arising out of the fraud of Larry Salander.   Wade Clark Mulcahy persuaded the First Department to uphold the <a href="http://blog.wcmlaw.com/wp-content/uploads/2013/02/Decision-AXA-v.-RAI.pdf">trial court’s decision </a>that AXA’s policy exclusion for dishonest acts of the insured barred recovery.

RAI consigned its artwork to the infamous art dealer Larry Salander, a principal of RAI, and the Salander O’Reilly Galleries.  Salander and the Gallery ultimately betrayed RAI, stealing millions of dollars in artwork.  Salander pleaded guilty to a $120 million fraud scheme, admitting to stealing numerous works of art. 

In its <a href="http://blog.wcmlaw.com/wp-content/uploads/2013/02/Decision-on-Appeal-1.29.13.pdf">unanimous decision</a>, the First Department ruled that AXA’s dishonesty exclusion was unambiguous.  The exclusion precluded coverage for losses arising from the dishonest acts of an insured, anyone with an interest in the property, or anyone to whom the covered property was entrusted.  The Court held that this policy exclusion applied to both Salander and the Gallery, who were entrusted with the artwork.

The First Department also ruled, as a matter of law, that insurance coverage only extends to fortuitous losses, even under all-risk policies.  The Court ruled that fortuity is a legal question to be resolved by a court.  Applying this standard, the Court held that the fraud perpetrated by Salander and the Gallery was not fortuitous.

Apart from upholding the so-called dishonesty exclusion in the inland marine policies, the ruling breathes new life into the doctrine of fortuity.

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