full screen, click the full screen icon in the top right-hand corner of your screen. To exit out of full screen mode, simply click the full screen icon one more time. It's important to note that you'll need to toggle out of the full screen mode to text in questions. Okay, we're ready to begin the webinar. There will be a short pause while I engage the recording. Hello and welcome to today's webinar, Auction Houses, a look behind the curtain. Please be aware of the IMUA statement. Today's presenter, Brooke Mellon, is Assistant Vice President of Claims and Risk Control with Berkeley Asset Protection Underwriting Managers, where she handles fine art and jewelry claims and provides risk management support to brokers and clients. Brooke joined Berkeley from Sotheby's, where she was Assistant Vice President of Risk Management for the Americas. At Sotheby's, Brooke handled insurance contractual matters and renewals. She also reviewed and oversaw movement and conditioning of high-value fine art and jewelry. Prior to that position, Brooke was a business development coordinator for March Private Client Services, where she provided insurance services including fine art insurance to high net worth clients. Further expanding her experience, Brooke was the registrar at Jack Shainman Gallery in New York City, where she scheduled and oversaw deliveries and inventory of fine art for gallery exhibitors, art fairs, and clients. Brooke earned her master's degree in visual arts administration from NYU and a bachelor's of art degree from Brigham Young University. Welcome, Brooke. Thank you and thank you for having me and for this opportunity and for the introduction. I'm very excited to be here presenting on this topic. It's something that's obviously of great interest to me and my intent today is both to help our listeners better underwrite when they are working with auction houses or in general arts-related organizations, but I'm also here to help protect the bottom line of auction houses. This presentation will be somewhat basic if you do have some background with auction houses, but hopefully I'll be able to add something to your existing knowledge on the subject. So to briefly go over what I'll be talking about today, I'll be speaking first about the players, so who are the auction houses, and then we'll set the stage and talk about how auction houses work. We'll go behind the scenes and discuss what some of the fine art risks are for auction houses, then we'll raise the curtain and talk about what some of the other insurance-related risks are, and then finally I will discuss the section called the show must go on and address some of the various issues that underwriters might face when working with auction houses. So first I wanted to talk about the main two players in the auction world that you're going to hear the most about and see in the news most often, and we have Sotheby's, which is where I was the risk manager, so I did the insurance for Sotheby's, and then we have Christie's. Sotheby's was established in 1744 in London when bookseller Samuel Baker holds his first auction, you can see his painting of him there, and then Christie's was founded in 1766 by a gentleman named James Christie, hence the name Christie's. The main difference between the two is that Sotheby's is a publicly traded company and Christie's is privately owned, so with Sotheby's you're going to have a lot more public information about their financials, whereas with Christie's it's a little more guarded, so you have kind of two different, very different players in this scenario. And just most importantly, what you've seen most recently is with Sotheby's, they set a record for selling The Scream in May of 2012, and with the entire selling price it sold for $120 million. And you kind of see this play back and forth between these two auction houses, because very soon after that you start to see Christie's breaking records, and now Christie's has broken the record for, in this last spring of 2015, for Picasso's La Femme d'Alger, which was sold for $179 million. So you can see in a very short amount of time we're seeing, you know, very large growth in terms of these records being set by these two auction houses. And, you know, unfortunately in the news a lot you're going to be hearing a lot, people love to hear the drama behind Sotheby's and Christie's, so you'll often be hearing about what's going wrong in the auction houses, which really doesn't need to necessarily scare you away as an underwriter, but if you understand what's going on it can certainly help you when you're addressing any kind of fine arts organization underwriting. One important event that happened in the 1990s is that both Christie's and Sotheby's ended up having to settle for a total of $512 million worth of claims that they cheated buyers and sellers in price-fixing on fees paid by both buyers and sellers. So sort of they had this kind of monopoly going on, and you see this more and more now that these auction houses are selling at such huge values, they're being a lot more regulated, whereas in the past a lot of people have said fine art world is the Wild Wild West without much regulation, but you're seeing more and more people take interest. Also recently in the news there have been quite a few increases in buyers premium, which I'll explain later, but that's basically the cost that the buyer pays on top of whatever the selling price or the hammer price of the object that they're buying. Also in the news I've been seeing a lot about chandelier bidding, which is a practice of trying to get buyers interested and excited. So people are saying well Sotheby's and Christie's will do this thing where they're kind of they're pointing at the chandelier or pretending that someone's bidding, but they're not really bidding. So this is something that has just kind of come up and it's still being looked at and regulated, but in their defense they say you know they do this to try and gauge interest and get people excited about objects on behalf of their sellers. And then finally with Sotheby's you're hearing a lot recently because they're a publicly traded company, they've had two activist investors and particularly Daniel Loeb was of most importance. He did a major turnaround at Yahoo, which is what he's most known for, and in the news recently he's been doing this quite a bit with Sotheby's, asking them to make quite a few cuts and changes. So this is something that you'll continue to read about in the news and that could eventually have some kind of effect on all auction houses, because whatever happens in these two auction houses then goes on to affect what we're looking at in the next slide, which is all the other players. And I tried to create a list of some of the auction houses, but I found a list that was 600 long of various auction houses all over the world. So this is by no means a comprehensive list, but three of the other names that you'll hear quite a bit in the news are Phillips, Bonhams, and Heritage. I'd say those are three very major players behind Christie's and Sotheby's, Phillips especially for contemporary art. And then you have an array of regional houses, which are houses located all over our country, as well as in New York. A lot of times they'll specialize in one type of art or a few different types of art. And then you have your international houses, which in some ways are favorable because they know the regulations of the various countries that they're located in. And finally we have these kind of new players that the market's not really quite sure what's going to be happening because of the online auction market. And everyone's watching it closely, but it's difficult to gauge how these players are doing. But from what we can tell, they are seeing some success because people are getting more and more comfortable with buying items online. And you're also seeing auction houses partner up with quite a few of these organizations to increase sales. So now let's talk a little bit about how they work. Some of the various services that you'll find within the auction house will be first and foremost appraisals. They'll provide appraisals for any institution or individual, including sometimes insurance companies. They also have trusts and estates departments that provide a full suite of services, including making marketing arrangements for sales, estate tax advice, family division, insurance advice. Then you have a financing leg, which is a somewhat more new part to what they do. And what they do is they loan anywhere from 30 to 60 percent on the low estimate using a person's art as collateral. And if the person can't pay back on that loan, then they can make arrangements to sell it either privately or for auction. Private sales is another area that you're seeing auction houses try and mimic what art galleries do. So they're trying to make what we call secondary market sales, or selling things on behalf of artists. And this way you have a little less transparency if somebody wants to be a little more confidential in how they're selling their work. And then of course we have auctions. And what I'm going to do is show you a quick clip of the selling of Scream at Sotheby's. And the gentleman you'll be watching is named Tobias Meyer. He used to be the head of contemporary art at Sotheby's. He's no longer with the company. But you'll see him, very interesting, you'll see him kind of pointing at different areas in the room. And you won't see who he's pointing at, but he's pointing up at the boxes. There'll be individuals in boxes who don't want to be identified. Sometimes celebrities or major players who want to remain confidential. He'll also be pointing at people who are on the phone. Again, because buyers want to be confidential. And you'll see in the end of this clip, he actually is, it is somebody on the phone who is buying the piece. You'll also see him, he kind of plays with the floor. He'll say it's with this bidder, not this bidder. Again, with this bidder, he tries to generate a bit of excitement. But we'll watch that now. And give us a second, we're working on the volume here. And the gentleman is Man of the Tux. And now if we make a moment, I propose this ring, from 1895, it is, 44 days, over 5 years, 44 years. 46, 47 in the room, 48 is already in, 48 is on my left, 49, 49, 50 in the room, and 50 is already in the room, 69, 70, 71, 72, and 72. We're starting with the 107 ATM, and $107,000,000 bank. Happy? And $107,000,000 to the Chinese business guest, Mr. Stefan Eichel-Feladel, for the historic sum of $107,000,000. How much? Sold! Thank you, Charlie. Okay. So, again, that was just to give you a little bit of flavor for what happens. And, actually, if you are ever interested in seeing an auction, most, except for these high-value evenings, are open to the public. So, I encourage you to, at any time, stop by an auction house and see an auction, see them in action. So, now I'm going to move on to the next portion where we talk about another important part that you should understand whenever you're underwriting an auction house, which is the consignment agreement. You always hear reference to the three Ds, death, debt, and divorce. So, these are the main three reasons why you will find people consigning property to an auction house, and why auction houses are often checking the newspaper to see what's going on and who they could be talking to about potentially consigning, whether it's because of a death in the family or divorce, et cetera. So, once you find somebody to consign this property, then there's a process of determining the terms for your consignment agreement. And, of course, insurance is a major player in that. There's a question of, you know, will it be the auction house or the client insuring it? Oftentimes, it's the client, but, again, it often depends on the negotiating process. Usually, there's a set standard, but as you get up in the higher range of property, you're going to find a lot more variety. And, usually, they'll determine the valuation based on what's called the low mean and the high estimate. So, with any consignment, you have a low estimate that they intend to achieve, a mean estimate, which is the mean between this low and high estimate. And then, usually, before a sale, an item will be valued based on that mean estimate. Following a sale, if it doesn't sale, it's going to most likely be insured at what's called the reserve value, which is what's the lowest acceptable bidding price that a seller would accept. And, if it does sell, then often it'll be covered at what's that hammer price, which you saw in the video. You said $107 million sold, and depending on the situation, might also be insured at the buyer's premium amount. So, buyer's premium, which you've heard me mention a few times and which has been increasing somewhat, as of February 1st, the schedule you'll see below, anything that sells under $200,000, on top of that, you'll pay a 25% buyer's. So, if you're buying, you'll pay an extra 25%. Anything between $200,000 and $3 million, you'll additionally pay 20% on top of that, and following that, you will pay anything over $1 million, a 12% buyer's premium. So, that always needs to be calculated into your buying. And then, there's also, on the seller's side, a commission that goes to the auction house, and that's based on a sliding scale of commission rates based on your combined annual sales of property. And the consignor may also be charged for marketing, restoration, shipping, handling, and other services. And then, finally, there's something called a guarantee, which is basically what you'll find again on these higher value items where the option house will say we guarantee this will sell. We're going to find a buyer for it in advance. If it doesn't sell at auction, we're going to buy it. And you're seeing a lot more competition between Christie's and Sotheby's to get clients and so a lot more guarantees in the marketplace, which is obviously a financial risk to the institution. Okay, and so next we'll talk about a little more behind the scenes and what I've seen some of the fine art risks are, especially in five areas. One would be the interaction with property, two, inventory volume, three, events and exhibitions, four, shipping and movement, and five, security. There's obviously a lot of other areas, but these are the areas that I would definitely focus on. So first we have patron and staff interaction with property. In a museum, I'm sure you've hopefully all been to a museum at some point in your life, and you'll see that there's often just no no touching at all, whatsoever, and the staff is going to even probably not be touching the what you call the property or the fine art at any time. However, in an auction house, sometimes it's set up like someone's home and it's intended for people to potentially sit on or potentially handle, try it out. So it's definitely a different kind of risk than you'd find at a museum. And for example, I would see sometimes a client go and reach for a painting on the wall and pull it off because they want to see the back. And sometimes they may not quite know how to hang it back up, and if there's not somebody or they don't ask for assistance, then unfortunately I've seen it where they don't quite hang it perfectly, or they're playing around with furniture, they don't quite know how to handle it, and you know something breaks off. So that's one thing to think about, and later on I'll talk about some of the solutions to these problems, but it's good to understand it's definitely a different environment. With auction house, you're also dealing with fluctuations and inventories. So a museum collection or a gallery, they might have work coming in and out, but it's not quite as at the volume you'll see in an auction house with their seasons. So it's very seasonal, and sometimes managing the storage space can be difficult. You have a lot more movement also internally. It's not just going to one storage space, it's going to a space to show a client who wants to buy it, and then it's being put away, and then it's being pulled for exhibition, and then it's being pulled for exhibition, and going and being turned on the wall like you saw the screen piece. So there's a lot more movement going on, and you also have to be cognizant of inventory systems, and it is possible if you have that much inventory, if you're not on the game, something could potentially be misplaced or difficult to find. Then with your events and exhibitions, which when I was at Sobeys was one of my most nerve-wracking issues of dealing with events, just because you have clients, and they're very important, and they're, you know, they're your buyers, and you have to have events to get them excited and interested, but you have potentially drinks and beverages, and you have staff that's working the event, caterers coming in and out, and then it's the same with your exhibitions. You have quite a bit of close proximity, people maybe looking in other directions or not paying attention to what they're doing. So I see these as kind of two similar risks, and I'm going to show you a clip, a recent clip of a 12-year-old boy at an exhibition, and you can just watch once we get it up, what happens, but this painting here that you're seeing pictured on the right is in part because of what you'll be seeing shortly. And there's no sound here. This is security surveillance, so here he is, he has a cup, and wasn't quite watching. You saw he was looking in the other direction, and you can turn that off now. Basically, now he just stands there looking like, what do I do? I mean, it was fairly well protected. This was a, what was believed to be a 1.5 million painting, although there's speculation that it was a copy, it wasn't the real thing. So, I mean, that went off obviously and then in this picture you see the after-effect. This boy's hand goes through the painting, and there are things you can do to avoid this, and then, you know, sometimes they just can't be avoided. You have to be prepared for that. And next we'll look at chipping and movement, which is, there's so much going on. There's items coming in, items going out, and you have, again, this huge volume of property, and that property that comes in needs to be conditioned and looked at. An example is, often you'll see items that are coming from the airport. If you ever have a chance, I'd recommend going to an airport and watching a fine art shipment, and it'll help you really understand what's going on because there's forklifts everywhere, not just to move the art, but to move other items. So this is a claim that you'll often see is a forklift going through a crate. And then in the second picture here on this slide, you'll see a painting where the glassine that was meant to protect the piece in shipment is actually stuck to the face of the painting on the corners, the edges there. So, you know, you've got movement issues, packing issues, all kinds of things that can go wrong. In security here, I have a picture of a, you know, a door fob, and then also a picture of a safe, which is two obvious means of helping better protect, you know, any institution. But one of the differences with an auction house is it's not quite like a museum in that it's sort of like a store where you go shopping for, you know, a fine, I don't know, jacket or something along those lines, where they want you to come in and out. So it's a very open access kind of environment. You have a high, also, volume of jewelry and inventory moving in and out, people buying items, taking them out the door. And then, as an example, also you have, we're seeing a lot more recently in the news, vandalism at museums. For instance, a gentleman in 2012 punched a Monet at the National Gallery of Ireland that was worth ten million dollars to make a statement. You have artists coming in who want to make a statement, so they quote-unquote change a Rothko by writing on it. So this is another, it's just kind of a wide array of risks and really unique solutions that you have to come up with to try and avoid these. So I'll get to those, but first I just wanted to talk about some of the other risks that are obvious risks that you run into any other organization, but they're somewhat different here in that, with your commercial general liability, you're going to have your standard trips and falls, but also you have an exhibition risk, meaning, like I've talked about, people are walking around the exhibition, they're not being careful, so they could actually trip and try and sue you because something happens to them, they get injured. Professional liability is another unique risk. For one example, recently in the news, with Caravaggio's painting called the Card Sharp, it was sold by Lancelot William Swape in 2006 for 42,000 pounds, and this was with an anonymous attribution that happened at Sotheby's. So Sotheby's said, it's not Caravaggio, we'll sell it for this amount. So the person who purchased it from Sotheby's, Orietta Adam, cleaned and restored the piece, and her partner, Dennis Mann, who actually was the world's foremost expert on Caravaggio, unveiled the work and proclaimed it a bonafide Caravaggio, and claiming that it was worth ten million dollars. So this gentleman, Lancelot, who sold it to Sotheby's, or sold it through Sotheby's, then sued Sotheby's, and interestingly, he lost his case in January of 2015 because Sotheby's was able to defend their authentication. So that's something, obviously, you're not going to see in any other type of organization. And with your cyber risk, here you have online auctions, which we talked about, and also just the caliber of clients you're dealing with. These are the top 1% of the nation, of the world, and you've got their personal information, which is susceptible to theft. So that's just something to consider when you're looking at the cyber liability. And finally, with directors and officers, you know, we see with the recent case with Daniel Loeb, you know, he sued Sotheby's and says something along the lines of, hey, I'm a director, and you're not, or I want you to make me, put me on the board, etc., etc. He sues, Sotheby's countersues, eventually they put him on the board, and he says, okay, you guys need to pay me for my costs related to my suing you. So the question is, okay, well, does that, is that a director's and officer's liability? So now I'm going to talk about the questions you can ask, some of the questions you can ask to address these unique risks that I especially learned about by being a risk manager myself. First, in regards to shipping, you want to ask, do you have protocols in place for high-value property shipments? Are they creating them in a certain way? Do they have security going with items at a certain value? At what value do you require that security escort for fine art, and is it different for jewelry? Does that guard need to be armed? Then you can ask, do you transfer liability to the client for shipments, or are you taking that on yourself? Ideally, as often as possible, they're making, they're having the client take the liability for that shipment from the client's home to Sotheby's, or Christie's, or any of these companies, and potentially even having the client insure it while it's on the premises. And then, if for some reason you do need to accept liability in transit, these are the questions you can be asking them. Do you condition that property when it's picked up? Do you go and take photos of it so that you can demonstrate? You know, sometimes we get things at the auction house, and if it hadn't been conditioned, we had no way of knowing, okay, was the shipper that damaged it, or was it like that when it was picked up? Another question you can ask is, have you vetted your shippers? Have you reviewed their insurance coverage? Do your shippers conduct background checks? Shippers can, on occasion, be known to steal items. Not often, but it is, there is that temptation there. So, do they provide background checks, and have they made you an additional insured on their, you know, their CGL policies? And then you can ask them, do you pack for transit, or do you outsource the service? Sometimes it's better to outsource it if people aren't qualified or able to provide that service. In terms of handling, when I say handling, I'm talking about the movement of the property around the building, so that, you know, hanging, taking up, putting up for exhibitions, taking down. You can ask, what training do you have in place for your art handlers? I'd make sure that they do consistent training, and, you know, find out if they have some kind of mentorship program for new art handlers that come on. Do you check references and background of the art handlers? That seems like an easy question to answer, but for some of these smaller organizations, it's definitely worth asking. Are clients allowed to handle property, and if so, who oversees this? Do you have people from departments, specialists there to assist them with this process? Does the staff, and when I say the staff, I'm not talking about the art handlers, but I'm talking about departments, like, say, the Contemporary Department. Are they handling the property a lot, and are they trained? Have they been trained to do that? Do staff hand carry property, and by hand carry, I mean when you go and actually pick up a piece, and you don't use an art shipper, but you go personally and pick up a piece from a client. Does that happen, and if so, what does that look like, and do those employees get trained in how to pack that property for transit? If not, maybe you shouldn't be doing that. So now I'll talk about events and exhibitions, and questions you can ask is, do you conduct regular walkthroughs of exhibitions? So this means being, you know, before an exhibition opens, just go spend some time in the space. Imagine if you had a camera, and you were taking selfies, or sometimes people need to back up to get a better shot of a painting. You know, do you allow people to take photos? Do you allow selfie sticks, which usually we recommend you don't. So getting a feel for it, but then also once an exhibition starts, go do some occasional walkthroughs, and look for those areas where people get a little bit stuck in an exhibition, where the flow isn't good, and think about ways that you can change it, and unfortunately you run into a lot of conflict with people within the organization. So oftentimes, you know, it's a matter of balancing those sort of relationships, and taking care of that before an exhibition goes up. You can ask if you have signage advising patrons of exhibition hazards. Here I have a picture. I recently went to an exhibition, and I actually tripped coming off of this floor in this very picture, because I just didn't see the difference in the two floors. Now I can be a little bit clumsy, and in some ways I say I was the perfect risk manager, because sometimes I am a bit clumsy, and I'm the perfect example of somebody who might maybe not be paying attention sometimes, looking around an exhibition, what have you, but that's something to think about. Are the floors different colors than the seats, or do they blend in? You can ask them if they serve food during events, and how is that monitored? Do the people who are carrying food out know how to look for tripping hazards, etc.? Ask them if they use candles or other flammables during events. This is a popular one, and you know, auction houses, you know, you have to heat food, so you know, what's the fire safety protocols in place for, you know, if you're heating food using sterno sternos instead of ovens, or you know, just you just have to make sure they have some kind of process and safety process in place, and if not, then they shouldn't be doing these activities. And then in relation to inventory, you can ask what inventory systems you have in place. Believe it or not, when it's a new organization, or maybe if it's a much older organization, they may not have an online system, so get a feel and just make sure that they have something in place, and then ask them if they condition check property on arrival, which I discussed. You want to make sure if it comes in damaged, you want to make sure that it did not happen, you want to make sure your client knows it did not happen while it was in the auction house, it happened in transit, etc. You can ask them how often do you perform an inventory check? Is that yearly? Is it twice yearly? And are you inventorying high-value items or jewelry, you know, more often than that, if not every day for certain jewelry items? Do you utilize off-site storage, and then how are items tracked there? Is it in the same inventory system, or do you rely on that storage facility? In terms of security, there's so many questions you can ask, but I'd say, has security been briefed on high-value property, so before an exhibition you can say, okay, this piece is worth 100 million potentially, keep a close eye on this one. It sounds basic, but it's really good to have your security aware because, you know, while you don't want to always advertise values, the values are usually placed on the placards of certain items, so make sure that they're aware of what's going on. Do you have cameras in place, surveillance, and how far back do you save those recordings? Sometimes you don't quite find out something's damaged and maybe a few weeks later, so is it being recorded over every week? It's not really going to help you to figure out how items get damaged. Simple question, but do you have a jewelry vault and who has access to that and are there other valuables that should be in vault or in safe? And then finally, do you have set protocols in place for releasing objects? And this can be an issue, like I said, because it's a very open environment, you have people coming in and out very freely, you want to make sure that they're not walking off with something. You want to make sure even staff are not walking off with something that they didn't potentially purchase. So going back to the other risk section, not just your fine art risk, but for example, your CGL, some of the unique risks that were I found to be unique to auction houses. One, do you collect certificates and have contracts in place with your vendors, meaning insurance certificates? And are you listed as an additional insured and lost payee? It seems pretty basic, but this is something I think might be new to some smaller art organizations. And again, do you walk through exhibitions looking for tripping hazards, not just, you know, potential damage to the fine art, but is there, you know, I've seen where people will be looking in another direction and if there's something that's set low down that has, you know, parts of it sticking out, they might be looking at a piece, a very brightly lit piece on another side of the room, easily trip, and then you could be looking at liability in that respect. Describe the maintenance of your facility. Are safety protocols in place? Do you have an emergency response plan? And with auction houses, there are unique considerations for their emergency response plan, especially for fine art triage. So something to ask them about. With your workers' compensation, again, do you collect workers' comp certificates from all outside vendors? Like I said, this is sometimes a new concept to some arts organizations. I wouldn't say necessarily a Christie's and Sotheby's, but maybe a newer company. This might be something that they're not thinking of. Do you teach safe lifting and handling to our handlers? I've seen a lot of back injuries or people trying to be brave and not ask for help. You know, an idea of being in communication with your employees, talking to them about are they handling things safely? And do outside vendors use their own equipment, such as ladders, when they're on your premises? With an auction house, you're going to have a lot of people coming in, hanging different items. If perhaps you need special expertise on a big Jeff Koontz sculpture, he usually requires an outside organization to actually install his pieces. So you're going to want to make sure that they're using their own equipment and not your equipment, because if they're using a ladder and it breaks, even if you have a certificate of insurance from them, you could potentially face some liability. So this, for the most part, ends my presentation. I just wanted to give you a brief look at some of the risks that are, again, unique to this type of organization, and I do think these questions could also apply to any type of arts organization. And, you know, sometimes it's a process of learning through mistakes, unfortunately, but it is a, it's an old industry, but it's also a changing industry, and an industry where the values are increasing ever more than they used to be. A lot of people are taking more interest in it, and a lot of people are going to their underwriters asking questions, so I hope that this presentation gave you all some ideas of some solutions you can provide to your clients. Thank you for an excellent presentation, Brooke. At this time, Brooke will take questions. To ask a question, if you're in full-screen mode, toggle out of it by once again hitting the full-screen icon, type your question in the bottom right-hand corner, and then click the balloon icon next to it. We'll wait a few moments for questions to come in. And we have, we have one question. How does an insurance person learn more about the art market? Sure, I think this is, that's a kind of a fun question, and I think a fun undertaking for anyone who just has an interest in the art world in general, but also I think it's important to really, if you are underwriting these risks, to understand the organizations, and unfortunately one thing you'll see sometimes is people in the art world can sometimes have fear of, you know, insurance, insurers and insurance, so how do you get to know people in this industry and really get an understanding of how it works if there's a bit of fear behind what we do? So that's something to keep in mind whenever you are kind of working with this subset of clients, is you're really going to want to, you know, help them to be comfortable with the service you provide, but also they want to know that you know maybe just a little something about the art world. So my recommendation, I use a list called Douglas MacLennan list. He goes through and posts every week different articles of interest, and I always find that he's able to find, you know, really good articles from all different sectors. There's a group called Art Info, and they provide quite a bit of feedback and just advice on the general art market, and then you have the New York Times. I, you know, take notice of the New York Times art section. They're very much on top of what's happening in the art world, and then you have what's called the art newspaper, and I'd recommend, like I said, going to auction houses, go to art fairs. Art fairs are a great way to kind of see what's happening in the art world and kind of stand behind the scenes, and you can see people interacting with basically what happens is an art, you know, a hundred art galleries will go to a space, and they're all kind of trying competing with one another trying to sell art to the patrons. So I would definitely say going to art fairs and just going to museums. There are a lot of museums have organizations you can get involved with, but I'd say sometimes it's baby steps kind of getting into and understanding that world. Thank you. The next question has several parts to it. In the case of consignments, are there always contract agreements in place? Do they always ID the minimum consigned value? Why or why not? In case of consignments, a lot of times you'll see the auction houses, they just really want to get that property in, and so sometimes they're just making arrangements to get that property there, or maybe it's something where the consignment agreement is a little more complicated, but they want to start showing it to people. So ideally there should be contracts or agreements in place, and that's a really great question to ask actually when you are underwriting, but there should technically be a consignment agreement in place for every sale, because that's where they lay out, okay, it could potentially sell for this value or this value. What's your minimum sale price? And they usually always have a minimum value. It's just like if you're selling something on eBay, you'll say, okay, I'll take $100 for this couch that I'm selling, but I really want it to sell for between $500 to $1,000. So they usually are putting a value, which helps your case if there is a loss. Ideally you want those values to already be in place, and if it's something, you know, in the range of $100 million, you want to make sure that they're doing their research, presenting their research in advance for why they think something is worth that value, so that they can justify it if there is a loss. Can you please explain the difference underwriting considerations between a physical auction house and an online auction house? Okay, I know this will be an interesting question, and it'll be, I'm sure a lot of you are starting to underwrite online auction houses. One benefit of online world is sometimes they're not even bringing in the property. So there you have a huge difference in that they don't necessarily have that issue of dealing with, you know, the property moving around, and so sometimes they're a bit more favorable in that respect. But also they're a little less established, you don't know necessarily their financials, you know, they don't have the reputation. It's a newer organization, so in that case you really want to understand their practices. You want to understand that they're an honest company, and I would say for the most part they all are, but with any startup, you know, you want to be asking them a lot of questions because their organization is going to be adapting and changing quite a bit to the market. So, and I'd say especially with that professional liability and advice that they may or may not be giving to clients, you want to make sure that they understand that they're being very cautious about the information they're sharing, and also the cyber liability. You just really want to make sure that, and unfortunately that's not my expertise, but I know that, you know, there are some basic, you know, get somebody in there who really knows the cyber underwriting, and ask those questions, and make sure that they have really good protocols in place because you're talking, if you're dealing with your high net worth individuals, they're going to be really upset if their personal information gets out there. More so, they're going to be more litigious than the average person, I'd say. Here's another question. How should we evaluate whether an appraisal is legitimate and accurate? That's a good one. You know, a lot of people say sometimes that auction houses aren't the best at providing appraisals. They say you should go to, you know, an outside appraiser because, you know, they might have, you know, their clients are important to them, what have you, so maybe they're not appraising correctly, but for the most part, what I saw is people really trying to give an accurate appraisal because they know about these, they're educated about the potential risk. The actual employees are educated, knowing that, okay, if I give a bad appraisal, I could end up in court having to justify this. So, there's all kinds of research. My favorite website is ArtNet, and oftentimes I will go to ArtNet and search for an artist that I'm not quite sure about the appraisal, and if the artist is listed there and there are prices there, that's going to really help you get a more accurate appraisal and make sure it's correct because that's the one nice thing about auction world is that those prices are very transparent, so you do have a market to judge against. Now, if there's an artist who does not have a secondary or what we call an auction market, that's when you need to be a little more just cautious and, you know, if they're trying to say it's worth what you think could be not correct, if it seems very high, chances are it could be because they're, you know, this artist isn't quite selling at auction yet, so that's when you need to be asking a lot more questions to, say, a gallery, but from what I've seen, auction houses are being much more thoughtful about how they're appraising these items. Next question, how often or what percentage of auction houses outsource packaging of fine arts for shipments versus handling in-house? And then there's a second part to that question. Any general rules about when they would outsource versus handle in-house? Sure, it just depends on how much staff they have, and like I said with these volumes, these huge volumes, sometimes, you know, and you've got this volume at a time when you really need those art handlers available to move items around, to move items from one exhibition to again, turning, and there are seasons when those art handlers are working incredibly hard, so as soon as that sails over, then you're starting to pack, and those aren't necessarily the people that you want to be packing after they've been intensely moving such high volumes, so you'll find a lot of them, if they don't have the financial resources, will outsource it, and when you're doing that, you should set a standard for how you condition that property, set a value at which, okay, anything over 1 million, we are going to do, you know, ideally they're doing it for every item, but if you don't have the staffing, then you, you know, you set a value and say, we are going to condition and photograph every item as it's being packed by this outside packer, but I mean, I would say quite a few of them do, just because they don't have the in-house resources for that. I know some of these did, but I can't necessarily speak for a lot of the other auction houses. Thank you, that's the last, oh, actually, we have one more question. Okay. Do online auction houses contractually accept any exposure, even when they don't take possession of the property? Hmm, that's a good question, not usually, not that I've seen, I'm trying to think of a situation where they might, I mean, I guess you have other times where maybe a property isn't coming to the auction house for a sale, maybe it's, you know, going from one house on the Upper East Side and you're trying to sell it privately to another buyer's house on the Upper East Side, and ideally they are not taking on that liability, but if they're not, you know, beforehand getting a certificate of insurance from the person who is potentially selling the piece and the person where the piece will be showing in the potential buyer's home, you know, they could potentially be taking on that liability if they're not being conscientious of that. So I guess it could happen, but it doesn't usually happen, and then oftentimes they're even not accepting liability for it once it's in their possession. But we all know that oftentimes that doesn't mean anything because there's, you know, ways to subrogate, etc. Thank you for an excellent presentation. I'd also like to acknowledge the Arts and Records Committee for assisting and coordinating this webinar and coming up with the original idea for it. Thank you also to our attendees for your participation and your interesting comments and questions. All attendees will receive an email with a link to an electronic survey. Please take a few moments to provide feedback to IMUA as we'll use that in future educational offerings. This ends today's webinar.

Brooke Mellon

fine art industry

jewelry industry

auction houses

Sotheby's

Christie's

risks

underwriting considerations

art market