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March 30, 2018 Practice Points

Liability to Customer for Stolen Artwork Not Covered Loss Under All-Risk Property Policy

The court in this matter rightfully circumscribed the policy to the risks contemplated by an all risk property policy

by Aaron H. Gould

In the recent decision of Dae Assocs., LLC v. AXA Art Ins. Corp., 2018 N.Y. App. Div. LEXIS 1023 (1st Dept. February 13, 2018), the First Department, Appellate Division in New York upheld the trial court’s decision to dismiss an insured’s breach of contract claim against an insurer pursuant to an all-risk property policy. In the matter, the plaintiff insured made a claim under its all-risk property policy for its liability to customers who had purchased artwork that subsequently had to be returned because the artwork was stolen prior to the ownership and sale by the insured. The court held that “[t]he all-risk policy at issue, which covered insured property for ‘all loss or damage to insured property,’ did not apply to plaintiff art gallery’s contractual liability to purchasers of stolen artwork that was returned to its rightful owner.” This was despite the fact that the policy form did not include the typical “direct” or “physical” qualifier to the policy’s coverage provision for ‘all loss or damage to insured property.’ The court reasoned that the basis for the insured’s claim was defective title and that it could not solely based on an argument of strict construction, “rewrite a policy to bind the insurer to a risk that it did not contemplate and for which it has not been paid.” To do so would interpret the policy so broadly that it would become a different type of insurance altogether. Additionally, Court relied on the fact that the artwork was not even possessed by the insured at the time of its alleged loss.

Take away: A common issue in cases involving all-risk property policies is whether the claim at issue constitutes physical loss or damage pursuant to the policy’s coverage provision. It is typical for insureds—like the one here—to argue for a broad interpretation of the “loss” portion of the coverage provision in an attempt to gain coverage for atypical property claims. A common argument is that loss covers the loss of use of property. The court in this matter rightfully circumscribed the policy to the risks contemplated by an all risk property policy and did not unreasonably extend the coverage provision to the outer limits of potential interpretation.

Aaron H. Gould is with Connell Foley LLP, Newark, New Jersey.

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