ARIS Title Insurance Corporation is the recognized global authority on legal title risks impacting the international fine art and collectibles market. ArtLaw.club had the honor to talk to the president of the corporation, Mary Buschman.
- Title insurance is one of the rare things absolutely non-existent in Latvia. We have not also heard of this type of insurance in the whole Baltic region. What is your professional view on the topic?
- Title insurance does not exist in very many places. What we are witnessing in this field in the USA is that people are increasingly asking questions about due diligence leading to buying works of art. There is more risk now as people are buying throughout the world for a lot of money. It is natural that they are worried about title issues (for instance, whether the provenance given to them corresponds to the one that actually exists). This is why people are approaching us primarily. Before, we were issuing title insurance to clients interested in transferring the title risk to us as the insurer. Now, we are charging fees for the research to verify the due diligence of title. We are looking into the provenance of the artwork and the identity of the seller. We are finding out this information ourselves or are asking it to be disclosed, to allow us to research it.
Currently, the two biggest concerns for artworks are questions of authorship and ownership. We deal with the ownership issue. Of course, we look into authorship in the sense that if someone evaluated the artwork’s authenticity, we make sure we receive the relevant documents.
- Is title insurance a market neccesity (necessary for certain deals) as it is with other types of property?
- Title insurance for artworks is not as mandatory as it is, for instance, with real estate insurance (in the USA if you want a mortgage on your house, the bank will ask you to provide title insurance to make sure that you are able to pay back the loan). Security interests and related issues are also common to many assets, including artworks. We look to the state Uniform Commerical Code (UCC) records, checking into whether the previous owner had taken a loan against the work and whether he had satisfied the loan, and try to the best of our ability to discover any hidden liens at the underwriting stage, so that these can be resolved before we issue the policy. With time, people are becoming more aware of the fact that there are hidden risks and they want to protect themselves.
- What are the main problematic issues you face in your practice?
- One of the things we have been seeing is an increase in value of artworks, and buying for investment, which is different from the past. People have to think of themselves not only as buyers, but also as future sellers. In five years, if the price of the work increases and they intend to sell it, they need to be sure that there are no title problems when they make the initial purchase. A common risk is lack of authority to sell. For instance, a son is selling his mother's art, or one of the siblings is selling, while multiple members of the family actually share ownership in the artwork. We see estate disputes as well. Sometimes, we also get involved in the field of stolen art (when the work was stolen quite recently from an institution or a home, or appears to be a World War II-looted work). One big area for us is a gap in provenance during the World War II era. Another that we see is cultural heritage (antiquities) import into the USA and Europe from other parts of the world where today, more than ever, countries of origin are making repatriation claims for works to be returned to them. People need to antipicate those risks ahead of time.
- Do you work both with the art and antiquities?
- Yes.
- Are you working only in the USA or globally?
- We mainly work with objects located in the USA, as well as Europe. We cannot issue policies in China, for example, but since we have a grasp of jurisdictions in Europe and the USA, it is easier for us to predict how a claim will or will not be enforced in these territories.
- Do you check only the publicly available information or do you make a private investigation as well?
- We do both. We look at public documents (for instance, if a work has been listed in an auction catalogue previously, we will verify this in the auction catalogue; if it has been exhibited somewhere, we will look up the exhibition and make sure that the painting was really present there; if it is listed in the stolen database, we search it in the major stolen art databases around the world: Lost Art, Interpol, The Art Loss Register).
Typically the client comes to us when there is a sale involved, a contract, a lawyer, an art dealer, etc. In terms of private information, we ask the client to disclose (and keep confidential) not only the dealer they are buying from, but also the ultimate seller. Sometimes, this may involve a discovery process or investigation into who that person is. If there is a family dispute (we just experienced this recently, when someone was sued by their children when they were trying to sell a work), we analyze the legal history of everything.
- If the defect of title is established and you need to remunerate the clients, do you use the regress option? Is this possible?
- No. We perform underwriting research at the outset and then we issue the policy which protects against future claims for the current owner, but we do not go back.
- Do you provide this research service separately from the insurance?
- Yes. Recently we have started to do this. This new service, “Know Your Title,” is about four months old. We realized that part of our clients were turning to us for the research before purchasing the work, and afterwards for whatever reason they decided not to buy it. They do not want title insurance if they do not buy the work, right? So, in response, we just started offering this due diligence where you get the outcome of the research (how risky the transaction looks like), but do not need to get a policy. Afterwards, if you still want to get a policy, all the fees you have paid are applied to the policy fee.
- There is one question very specific to title insurance. In case of remuneration, is it an “all or nothing” policy? Meaning that, in case of defect in title, do you need to compensate the whole amount or in certain cases might it be a partial compensation?
- The way it typically works is we issue a policy for the sales price at the time of the policy, so let's say the work is valued at $1 million, and then two years later the policy owner notifies us that someone is suing them for a title claim, we will step into the shoes of the policy owner. We hire a lawyer and defend their claim. It can then go a few different ways. Either we dispute the claim if we have a really strong case and likely will win, or we will make a payment (an option we reserve to use), at face-value of the work. In that case, payment would be $1 million. Traditionally, we have offered legal defense “outside the limits,” which means that whatever we spend on legal fees does not cut into that overall $1 million (imagine we spend $100,000 on legal fees, this will not be deducted from final payment).
- Do you have any threshold to enter the title insurance?
- No.
- From which sum is it financially adequate to have such title insurance?
- We work with two tiers of works. One is $1 million and above, which comprise most of our inquiries. The other is $250,000 - $300,000 and below (typically around $100,000 - $150,000).
- Do you have any statistics on the popularity of title insurance among collectors and dealers?
- I can say it has increased significantly since I started three years ago. People on the buying side realized they need to perform more due diligence than they used to. As a result, they are looking to resolve all issues regarding title at the outset.
For more information on the ARIS Title Insurance Policy, you may visit: https://www.argolimited.com/aris/product/art-title-protection-insurance/