Monday, July 17, 2006

Title Insurance for Art

The Los Angeles Times reports on the introduction, by New York-based ARIS Title Insurance Corp., of title protection insurance for works of art, similar to real estate title insurance. The premium on a million dollar painting with undocumented Nazi-era provenance would be about 5%, or $50,000; a piece with a more secure title might be cheaper. So far they haven't sold a single policy, though one application, from a private collector, is under review.

In their "The Economics of Legal Disputes Over the Ownership of Works of Art and Other Collectibles," Richard Posner and William Landes noted the "the absence of title insurance for works of art to emerge" and said it may be due to "adverse selection and to the difficulty of calculating the risk of defective title to art with actuarial precision":

"The first point is especially important. Insurance companies normally insure against the risk of something happening in the future rather than against the consequences of something that has already happened. The insured is more likely to know the past than the future and so more likely, in the case of insurance against the consequences of something that has already happened (such as a thief in the chain of title), to be exploiting information known to him but not to the insurer. Title insurance in real estate is only an apparent exception, since all the title insurer insures against is the risk of its having failed to conduct a thorough search of the public registry of real estate titles."