MUSICAL INSTRUMENTS a Fine Art Underwriting Primer

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MUSICAL INSTRUMENTS

A Fine Art Underwriting Primer

Prepared by IMUA’s Arts & Records Committee

The Inland Marine Underwriters Association [IMUA] is a not-for-profit national trade association primarily focused on the commercial inland marine line of business. IMUA was organized in 1930 as a national trade association and rating bureau for all inland marine classes. In 1948, the rating bureau activities of the IMUA were transferred to the Inland Marine Insurance Bureau (now defunct) due to the 1944 US Supreme Court decision in the South-Eastern Underwriters Association case.

Today, IMUA is comprised of --  Members - insurance and reinsurance companies that underwrite a significant portion of the commercial inland marine insurance in the U.S.  Associate Members – companies or organizations that provide products and/or services to the insurance industry.

IMUA is committed to advancing the educational, governmental, regulatory and technical interests of the commercial inland marine insurance industry.

One of the services IMUA provides its members is the publishing of information for use by underwriters, loss control and claims specialists, and other interested parties. The topics covered by IMUA Reports, Bulletins and News Articles are intended to provide an overall awareness of the issues, hazards and exposures associated with a specific industry or inland marine class of business.

Volunteer members of a technical committee of the IMUA or IMUA staff have produced this information. Committee members abide by antitrust restrictions while compiling information.

It is generally not possible to treat any one subject in an exhaustive manner, nor is it IMUA’s intent to do so. No warranties are made regarding the thoroughness or accuracy of the report or any part of it. Nothing in this report should be interpreted as providing definitive guidance on any question relating to policy interpretation, underwriting practice, or any other issues in insurance coverage.

IMUA does not prescribe to its members how to make underwriting or claims decisions, nor does it require that analysis follow any particular format. IMUA offers thanks and appreciation to Anna Belk and the Arts & Records Committee members for their contribution to this report:

Jennifer Schipf (Committee Chair) – XL Catlin Amelia Brankov - Frankfurt Kurnit Klein & Selz Claire Brown –Winston Art Group Paul Fritsch – ACE Group Andrew Gristina, Navigators David Hall, Wiggin and Dana LLP Simon Hornby, Crozier Fine Arts Thomas Kline, Andrews Kurth Roseann Kreischer, XL Catlin Melissa Lalka – Chubb Group Khem Lewis, XL Catlin Christopher Marinello, Art Recovery International Shelia O’Keeffe – Gen Re Julian Radcliffe – Art Loss Register Casey Santangelo – Travelers Linda Selvin – Appraisers Association of America Dorit Straus – Independent Consultant Victor Wiener – Independent Appraiser

The Market & Valuation

Musical instruments make up a unique segment of the fine art market and therefore it is important for inland marine underwriters to understand the complexities of their fragile nature and use in order to provide proper coverage. Today, dealers and auction houses all over the world participate in the rare musical instrument market. Corporations, governments, and individuals acquire instruments for many reasons: the preservation of art, to provide instruments to younger artists who cannot afford them, investment returns, or a combination of all of these objectives. Throughout history, high valued musical instruments have always been owned by wealthy individuals. In earlier centuries only the nobility had the resources to own renowned instruments. Today, they are easily owned by a variety of people ranging from passionate collectors, professional musicians, and even high school students who each need coverage to protect their instruments.

Generally, the “star factor” or provenance of an instrument adds an allure and can raise prices, but as with art, the majority of the musical instrument market tends to be stable. There are exceptions, such as “Elvis’s guitar,” “Liberace’s piano,” and rare 17th and 18th Century Italian stringed instruments that have set auction records and made headlines due to their high prices. Good violinists may keep the instrument(s) for a long time which also adds to the value. For example, high prices were paid for instruments once owned by the violinist, Isaac Stern or the great cellist, Mstislav Rostropovich. Other than the provenance and history of an instrument, maintenance, condition, and the quality of the inner mechanisms all contribute to the value of the instrument. The 19th century virtuoso Niccolo Paganini’s Guarnerius violin, nicknamed the “Cannon” for its powerful sound, is insured for several million dollars and is accompanied by an armed guard when it leaves its permanent home in a museum in Genoa.

The Stradivarius and del Gesu instruments command high collectible prices, ranging anywhere from a million for an unexceptional violin to twenty million for a fine Stradivarius cello. Generally, the most expensive instruments are the Stradivarius violins of which roughly 600 violins, violas, and cellos are still in existence.1 The Stradivarius has become an investment and at times the owner will lend the instrument to a celebrity soloist to play for an event. 2 Rare instrument prices benefit from a relatively stable market, high but not excessive individual values, and an excess of demand over supply among players and collectors. Although eye popping prices are paid for pristine instruments there are also many instruments in very active use. At lower values, bows are also in high demand and can command prices as high as $450,000 with notable provenance.

Many components go into the valuation of a musical instrument since each instrument is unique. 3 Values are derived from the provenance, the condition and quality of the instrument. The condition of

1 The Art Loss Register, Musical Instruments database information, 3 March 2014. 2 Alberghini, Paolo. Interview, 4 April 2014. 3 Alberghini, Paolo. Interview, 4 April 2014. 3

the back of an instrument is the most important. Cracks compromising the back will greatly devalue the instrument.

Experts

There are very few independent appraisers for musical instruments outside of the dealers. Most pre- sale valuations are given by dealers who have no financial interest in the sale of the item to separate conflict of interests. It is typically to use a bill of sale for establishing. If the instrument sells, the buyer should get an independent appraisal from an outside source instead of only relying on the dealer selling the piece. There is not one expert who knows all instruments. The musical instrument market is a small niche and dealers tend to specialize on a limited number of makers that they know them exceptionally well. In some cases, when authenticity may be questionable specialists may use expensive technology like dendrochronology, the science of dating events in former periods by comparative study of growth rings in trees and aged wood,4 to determine the age of the wood and other times will ask a scientist to confirm dates. Obtaining a certificate of authenticity can be expensive and takes time as well as expertise to establish. Overall, the musical instrument trade is gaining more knowledge and it is much harder to make a mistake about an instrument.5

Type of Policies

Policies for musical instruments vary based on the needs and the activities of the owner of the instrument. The insured of a musical instrument policy can be individuals, non-professional using the instrument(s) for personal use, a professional individual, a professional musical instrument program, a student musical instrument program, a professional group/association, an orchestra, or a musical instrument dealer.

Individuals who are not professional musicians, who wish to insure their instruments and prefer to separately schedule the instrument rather than consider it as contents, can request an endorsement to add the instrument to their home owner policy. Almost any instrument including pianos, stringed instruments, brass, percussion, and various types of guitars can be scheduled on the policy. The values for these instruments tend to be low and the transit exposure minimal. Individuals who are professional musicians and have a more significant travel exposure, will not qualify for these types of endorsements, but will secure coverage from a specialty broker and insurance carrier. In particular, well known performers such as violinists with high valued instruments will fall under this group, as well as other stringed instruments that are of high value.

Professional and student musical instrument program policies provide coverage for a group of individuals participating under one company or institution. Individuals who are professional musicians but who have instruments of not particularly high value can purchase coverage under a group policy for

4 Marriam Webster Dictionary, 3 December 2014. 5 Alberghini, Paolo. Interview, 4 April 2014. 4

their particular instrument, such as violin, viola, harp, flute, brass, percussion, or electric guitar. Student music programs provide instruments for rent and coverage is provided through rental houses.

Professional orchestras will purchase coverage on behalf of all the members of the orchestra, including retired members. Coverage will be for all the instruments used by the musicians in the course of their employment, sheet music, and the music library of the orchestra as well as any additional instruments that the musician may have at home not related to their professional work in the orchestra. Chamber Music and smaller ensembles are similar to orchestras but have a smaller number of individuals within the group.

Similar to fine art dealer policies, a musical instrument dealer policy is usually bought by musical instrument makers, repair shops, and dealers who require a policy specific for their needs. This includes covering owned and non-owned instruments at the premises, off their premises, and in transit. Instrument dealers engage in a collaborative business and it is not unusual for colleagues in the business to co-broker sales. A musical instrument dealer will frequently take on consignment instruments belonging to others who “entrust” it to them. In turn they may either keep it on their premises or allow it to leave the premise with customers who are trying it out prior to purchase. It is not unusual to fly an instrument internationally so that the buyer may play the instrument before purchasing. Due to the higher risk involved in a consignment, specific insurance is bought while the item is on consignment or travels so that dealers are at a low risk.6

Common Policy Coverage and Exclusions

There are a few specialist brokers in the musical instrument business. One experienced broker from Heritage, Ellis Hershman, gave an explanation of typical coverage’s and exclusions seen on a musical instrument policy:

“Musical instruments are generally insured on an agreed value basis. However, there is an exception for a dealer valuation clause that is similar to what you find for a fine art dealer. Common exclusions include wear and tear, criminal acts, loss of use, inventory shortage, and repair. Other exclusions for dealers sometimes include denting, marring or scratching. Musical instrument collectors are nearly identical to art collectors.”7

In addition to the standard musical private collector or dealer, there are unique policies for covering rental programs whether for high school students or professional musicians. Hershman explained how to underwrite this type of program,

“I write one dealer who has a rental program and they rent to professional musicians only. They have special cases for each instrument to help protect them. The rental program is similar to

6 Alberghini, Paolo. Interview, 4 April 2014. 7 Hershman, Ellis. Heritage Insurance Services. Personal Interview. 13 December 2014. 5

writing a packer/shipper, customer all-risk policy and rates are used for weekly, monthly and yearly rentals. Student rental programs are even rarer. The exclusions are more of the dealer variety because the instruments move frequently and it is done on scheduled values.”8

Transit

Similar to fine art high values and fragile nature, musical instruments need to be securely packed and carefully monitored when in transit. It is preferred that musicians accompany their instrument when traveling to concerts. Most small to medium sized instruments such as violins and violas can be brought on board as standard carry-ons. For larger instruments, such as the cello or bass, an airline will allow an additional fee or purchase of an additional ticket for the instrument to travel on board. Due to changes in airline regulation, musicians need to check airline policies before travel arrangements are made. 9 Hershman advised, “Generally musicians will travel with their instruments and not allow them to be stored under the plane. They can buy an additional seat for the instrument. There are a lot of flight travel cases made by companies that will protect an instrument from damage.”10 A well-known musical instrument case maker is David Gage who has a patent on the Upright Bass Case. The superior cases are typically custom-made and built with modern technology to protect the instrument.

Restoration

Due to the sensitive nature of an instrument, most are damaged at some point or another and repairs are frequent. Unlike fine art or other collectibles, a lot of instruments are designed to break along certain stress points and are more easily repaired.

Storage

Appropriate storage of musical instruments when not in extended use follows similar principles adopted for fine and decorative art; maintain a stable temperature and relative humidity. Severe exposure to cold or heat or a very quick change in climate is likely to have an adverse effect on the instrument causing it to crack, warp, corrode or tarnish depending on materials used in fabrication. For strings and woodwind, the range of 70°F +/- 5° and RH 50% +/- 5% is appropriate. Instruments with metallic elements or made from one of more metals ideally require a lower temperature and an even lower RH, as far down as 35%, to prevent corrosion and tarnishing for extended storage.

Prior to extended storage it is preferable to disassemble the instrument, relax strings while maintaining some tension, remove reeds, mouthpieces, mutes, straps and clean all parts before storing in the instrument’s carrying case. There is specialized music furniture available for both short and long term storage providing lockable units or lockers to accommodate all types of instruments plus mobile racks.

8 Hershman, Ellis. Heritage Insurance Services. Personal Interview. 13 December 2014. 9 Lambson, Liz, Safe Travels: 8 Tips for Transporting Musical Instruments, p.2, 11 June 2014. 10 Hershman, Ellis. Heritage Insurance Services. Personal Interview. 13 December 2014. 6

Handling of historic instruments follows some basic principles; wear cotton or nitrile gloves when handling the instruments to protect from salts and oils which are naturally present on hands and can cause corrosion. Instruments that have been repaired may have inherent weaknesses, for example, a brass instrument may have been soldered, and require special care.11

Pianos

Pianos are another type of musical instrument that have a long history before it developed into the well- known instrument of today. Prior to the invention of the piano, the clavichord and the harpsichord were the most prevalent instruments used either in the home or small concerts. Eventually these two instruments were developed into what is known as the modern piano, which is a set of keys connected to an inner hammer that hits strings to make a sound. The invention of the piano allowed the ability to make sounds in a repeated fashion over and over again. With time the piano was enlarged to create a larger sound and volume. The number of octaves was increased from the earlier days by heavier strings adding tension to the frame. The entire piano structure became stronger and heavier.

Pianos range from the seven-foot Concert Grand Piano to several other sizes of grand pianos, and upright pianos, which were the most popular for home use. Pianos became so popular that there were hundreds of manufacturers in Europe and the United States. Today, most of the piano manufacturing companies are no longer in business and there are far fewer piano makers in Europe and the US. With the interest in classical music in Asia, there are several makers that manufacture pianos in Japan, China and Korea.

The most famous pianos are made by Steinway, Mason & Hamlin, Fazioli, Bosendorfer, and Yamaha. Baldwin and Bechstein pianos are no longer manufactured, but many pianos are available through private or dealer sales. A Steinway Grand in good condition can retail from the low $30,000’s to a high of $100,000. Fazioli and Bosendorger’s are also extremely high valued pianos. The condition of the inner workings of the piano such as the strings on pins, hammer actions, alignment, and sound board brackets all effect the total value of the instrument.

Sheet music and Scores

Musicians, regardless of instrument or genre of playing, professionals or non-professionals, utilize sheet music and scores as part of their practice. Some music is hand written by the composer particularly when the demand for that work is small. Sheet music and scores are purchased through small but diminishing music stores and music publishers. As such, costs for sheet music has risen considerably even for works that are no longer protected by copyright. For example, a recent purchase of Peter’s edition of Beethoven complete piano sonatas in hard cover could exceed seventy-five dollars per volume. Soft cover costs are lower, but could also cost upwards of forty-five dollars for each volume.

11 Simon Hornby, Crozier Fine Arts, 27 October 2014.

Today, with new technology, many works are available on-line and many musicians will download works directly from the internet. There are also computerized music stands where music can be downloaded directly to an IPad or similar device and used directly for performance. It is also now possible to make notations similar to the way musicians make notations on sheet music printed on paper.

There are numerous music libraries on-line particularly for works whose copyright has expired. Professional orchestras and major music conservatories maintain extensive libraries of sheet music and full scores for every instrument and every work in their repertoire. In the event of a loss to the sheet music, the orchestras would incur huge costs to replace their libraries. Major orchestras should consider purchasing a separate limit for their musical library in addition to purchasing musical instrument coverage for their owned instruments. Sheet music is not only stored on premises but travels with the orchestra for their tours. All major orchestras employ a full time librarian to maintain, and augment their libraries. The stage handling staff is responsible for distributing the music on every musician stand prior to a performance. Some libraries such as the Morgan Library and the British Museum own in their collections original works by the greatest composers, such as Mozart Beethoven and many others. Those collections, for insurance purposes should be treated similarly to a rare book collection.

Theft

While musical instruments are fragile in nature and therefore easily damaged they are also susceptible to theft. The Art Loss Register has at least 4,500 to 5,000 instruments noted as stolen or missing in their database. Theft occurs mostly for values under $100,000 and where known, the premises of stolen or missing instruments include private 58%, company 8%, public 6%, gallery 5%, in transit 5%, museum 3%, warehouse 1%, church 1%, or other 13%.12 The serial number, label, grain of wood/striations, outline of the instrument, characteristic markings/inscriptions, and unique features of the instrument are used to identify stolen or missing instruments. In some cases, tracking devices can be inserted into the instrument case to help prevent loss. Similar to art, the thieves have an interest in keeping the instrument as safe as possible in order to maximize the value. However, some damage is possible if it is not kept properly or the case is discarded. Once an instrument is recovered, damage and authenticity are the main concerns. Thieves will often try to disguise the instrument by removing or switching its label.

Databases

Databases are designed to provide information on a market wide basis which cannot be accumulated by any one insurer. They may help confirm information provided at the underwriting and proposal stage by listing value, previous damage, claims, and ownership to reduce fraud, help the insurer to include all relevant factors in the acceptance terms, and to increase recoveries following losses.

12 The Art Loss Register, Musical Instruments database information, 3 March 2014.

There was a time when all databases were kept on paper, obscurely codified and tucked away in dusty stacks. Since the 1960s, technological improvements have seen the steady but exponetial growth of the quantity of inventories and the data contained within them.13 In the past, databases were only as effective as the information they gathered, which could never be fully comprehensive since they relied on cooperation with and the supply of data from insurers and others. Fortunately, the field of database management for fine art and high-value objects is changing.14

The breadth of information that these emerging databases are able to record and the technological advances, such as image recognition software, they are utilising, is setting a new standard for the tracking, identification and recovery of stolen objects.15 Databases record as much detail as possible for each instrument. In order to establish the same instrument but different model apart, the instrument must have a unique number (as many modern, higher value instruments do), or be very well recorded like older instruments are with exact measurements, previous damage, repairs, and blemishes are documented with high quality images of the grain of wood, labels, and written records of provenance.

Databases collect data under the following general headings; stolen, missing, looted, damaged, loans, or ownership (current owner, in a museum, or other permanent collection never to be sold). The success of the database is dictated by the number of due diligence searches by sellers, buyers, insurers, law enforcement, and others who check the database in order to make recoveries of stolen items or uncover items of fraud.16 Fraud can occur when the instrument was sold by the policy holder or there was connivance in the loss. In order to prevent fraud, during the claim investigation stage, the loss should be reported to the stolen database even if the claim is not agreed (or never paid) since the registration may have information on a previous claim or claim on a second company for the same loss. If the claim is denied but the loss was real, then the policyholder will want to recover the stolen item. The registration should be in the policyholder’s name.

With the ability to record high-value objects with such accuracy established, the next step in tackling theft. In many cases, it is not until the crime has been committed that information about instruments is submitted to databases as part of the recovery effort. It is reccomended that proactive registration of items be completed as a deterrent to would-be thieves and a contingency in the event of any loss higher standard database is allowing law enforcement agencies, insurers, dealers and auction houses, along with their respective clients, to benefit from greater awareness in their need for reliable data on the provenance of musical instruments.17

The following databases accept registrations of rare musical instruments:

13 Jerome Hasler, Art Recovery International, 3 December 2014. 14 Jerome Hasler, Art Recovery International, 3 December 2014. 15 Jerome Hasler, Art Recovery International, 3 December 2014. 16 Julian Radcliffe, The Art Loss Register, 27 October 2014. 17 Jerome Hasler, Art Recovery International, 3 December 2014. 9

 Acoustic Music  ArtClaim  Art Loss Register (ALR) was founded in 1991 and is the world’s largest database of stolen art and antiques including 5,000 stringed, wind, brass, keyboard, percussion and ethnographic musical instruments. It carries out 500,000 searches a year and is used by most insurers.  Basoon  Cozio is the world’s largest source of stringed instrument and bow data, containing over 2,500 makers, 30,000 instrument and bow records and 50,000 historical auction price records. It was founded in 2003 and is now owned by Tarisio.  GearTrack provides registration of ownership of any type of musical instrument or equipment and records stolen items in cooperation with the ALR. It is searched by dealers and pawnbrokers.  Internet Musical Instrument Database  Maestronet provides a sales portal for instruments and a stolen listing.  Music Tag  Musical Instrument Museums Online (MIMO)  Musical Chairs  Screaming Stone Stolen Music Instrument Recovery

Loans/Liens

Insurers may be approached for cover on an instrument on which a loan has been made. This should be noted in the UCC State filing system so that the lenders position is protected from the borrower trying to raise a second loan or selling the item without the permission of the lender. The UCC State system can be checked by a buyer or lender but its existence is not well known outside the USA and it is organized on a state not federal basis. The Art Loss Register runs a similar system for recording loans relying on checks from potential buyers or borrowers and checking large numbers of auction and other sales to prevent unauthorized sales.18

Types of Musical Instruments

 Strings: Cello, Bass, Guitar, Viola, Violin- all have bows except the guitar  Woodwind: Bassoon, Clarinet, Flute, Oboe, Recorder, Saxophone  Brass: Cornet, French Horn, Trombone, Trumpet, Tuba  Percussion: Cymbals, Drums, Piano, Tambourine, Triangle  Bows can be valuable depending on if they are made from a master maker using better materials and attention to detail. Musicians can create better sounds and tones with higher quality bows.

18 Julian Radcliffe, The Art Loss Register, 27 October 2014. 10

Famous Violin Makers

 Antonio Stradivari was known to make the best violins in the world. The quality of its sound is the reason for it high prices.  Carlo Giuseppe Testore was a renowned maker of musical instruments from the late 17th century to the early part of the 18th century. He made violas, double bass, violins and cellos.  Giovanni Batista Ceruti created violins from cheap wood, making up for it by his detailed handcrafting and construction of the instrument.  Gasparo Bertolotti da Salo

Famous Guitars Makers

 C.F. Martin and Company: In 1930, the company manufactured the OM-45 Deluxe. Only 15 such pieces were made that year.  The Fender Stratocaster is one of the most favorite instruments by esteemed rock guitar players and musicians. Some of the legendary artists who have used the instrument are Buddy Holly, Stevie Ray Vaughn and the legendary Jimi Hendrix and Eric Clapton  Robert Bouchet: The famed French guitar maker made only 150 guitars during his lifetime, all of which have turned out to be very expensive and desirable  Antonio de Torres: The guitar maker from Spain

Famous Violin & Bow Makers

 Famous instrument makers in addition to Stradivari include the Amati family, the Guarneri family, the Gagliano family, Matteo Goffriller, Lorenzo Storioni, Nicolo Bergonzi, Domenico Montagnana, and Giovanni Battista Guadagnini.

 There are over 200 important bow makers, among them German, French, Italian, and English. The most famous of them includes Hill & Son, Lupot, Tourte, Vigneron, Voirin, Dodd, Tubbs, and Vuilllaume.

Best Underwriting Practices:

 Keep musical instrument in your possession at all times, it is best to have physical contact  Use confidentiality in all aspects of location especially during travel  Keep the case closed while instrument is inside

 Forbid others to play the instrument when on loan except the person the instrument is loaned  Use a detailed loan agreement outlining security and protection measures  Notify the police immediately if instrument is missing or stolen  Be aware of airport protocol in advance

Musical Instrument Theft in the News: http://www.jsonline.com/news/crime/stolen-stradivarius-violin-reportedly-recovered-in-good- condition-b99199772z1-243934631.html http://www.telegraph.co.uk/news/uknews/crime/10210695/Violinist-Min-Jim-Kym-elated-at-recovery- of-1.2m-Stradivarius-stolen-from-railway-cafe.html http://www.bbc.com/news/uk-england-london-25432160 http://cityroom.blogs.nytimes.com/2009/08/17/lost-violin-and-owner-are-reunited-again/ http://www.nytimes.com/2008/05/11/weekinreview/11wakin.html?pagewanted=all http://minnesota.cbslocal.com/2012/03/23/40k-cello-stolen-from-mans-suv-recovered/ http://articles.latimes.com/2004/may/07/local/me-cello7 http://www.infowars.com/tsa-snaps-world-renowned-cellists-20000-bow/

Illustrations:

Antonio Stradivari Colossus Violin, 1716. Digital Image. The Art Loss Register, n.d. Web. 05 November 2014.

Baroque carved wood organ, probably by Neapolitan Masters. Digital Image. The Art Loss Register, n.d. Web 05 November 2014.

Bronze Church Bell, 14th – 15th Century. Digital Image. The Art Loss Register, n.d. Web 05 November 2014.

Indian Bell made from metal. Digital Image. The Art Loss Register. n.d. Web 05 November 2014

Original musical score of Liszt. Digital Image. The Art Loss Register. n.d. Web 05 November 2014

Pear Tree and Ebony 17th Century small organ from Silesia. Digital Image. The Art Loss Register. n.d. Web 05 November 2014

Salvi Arianna Harp. Digital Image. The Art Loss Register. n.d. Web 05 November 2014

Stradivarius Model 37 Trumpet, Vincent Bach Elkhart. Digital Image. The Art Loss Register. n.d. 05 November 2014

Systeme Limonaire Kennemerpoort Street Organ. Digital Image. The Art Loss Register. n.d. 05 November 2014