MUSICAL INSTRUMENTS A Fine Art Underwriting Primer Prepared by IMUA’s Arts & Records Committee Copyright 2015 Inland Marine Underwriters Association 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 2 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