Art Damage & Diminished Value

March 30, 2010

An Observation on Diminished Value

Conservators and restoration specialists Code of Ethics prohibits them from entering into the realm of appraisals as a clear conflict of interest. However, the reality is that the “success” of a conservation treatment of a damaged work of art does have a very real impact on the value of the piece after treatment.

 Just as an art appraiser working within the insurance industry is NOT a representative of the insurance industry, neither is the conservator. Many conservators have apprehensions about the insurance industry and have legitimate issues and concerns regarding their direct or indirect involvement in fine art insurance claims or their own insurance coverage.

 The question “What is Art?” lingers within the insurance industry. A vast majority of the people working within the domestic insurance market acknowledges their limited knowledge and appreciation of art. Art appears intimidating and foreign to insurance agents, brokers, underwriters, and claims adjusters. However, there do exist a minority of people within the insurance industry who are atypical and specialize in fine art insurance.

 The U.S. insurance industry has a diminishing and narrow understanding of the art object as well as the role of the fine art conservator. When an object of art is damaged, the insurance company typically assigns the claim to an adjuster. The adjuster assigned to the claim can either be a company adjuster or an “independent adjuster”, by definition, not on the payroll of any specific insurance company.

 Consultants are utilized when a claim requires a specific expertise. A hail damaged roof, for example, would require the technical evaluation of a structural engineer to properly assess the damages. I play a similar role within the art community. Within the appraisal industry, I am one of the only fine art experts with over 18 years as a Property &Casualty adjuster. My role as an adjuster was to investigate the insurance claim by meeting with all interested parties and making a physical inspection of the work or works of art to assess damages. Adjusters are guided by the insurance policy, which can have slight variations from company to company. Many claims for fine art involve damage in transit. An underwriter’s greatest exposure is not always fire or theft but sub-standard packing and handling.

 When a work of art is damaged, you should secure the services of a trained conservator or restoration specialist as well as an accredited or certified art & antiques appraiser to assist with the insurance claim.  Conservators or restoration specialists can provide you with opinions regarding restoration, while the appraiser can provide value opinions both before and after restoration.  Valuation subsequent to restoration is often referred to as “Diminished Value”, although not all restoration will diminish the value of a work of art. Diminished Value calculations can be very difficult for conservators, insurance adjusters and collectors to fully comprehend; yet it is a constantly recurring problem within the insurance industry. This subjective process is about the position of the artwork within the art market and not about the success or failure of the conservation. The quality of the conservation is an important factor in determining diminished value although the monetary compensation for damage is never a reflection upon the quality of the conservation. Conservation can be 100% successful, yet the value of the artwork can be negatively affected. Conversely, even a partial restoration of certain works would affect their value to the positive. In addition, the auction market, history of private sales and the state of the art market at the time of loss, should also be considered in determining loss of value. Many appraisers utilize a scenario, which incorporates a mathematical formula of subjective values pre and post damage where the difference between the two numbers equals the loss of value.

 Loss of value compensation is a negotiated compromise that should be discussed by the adjuster and the owner of the artwork. A conservator should never be placed in a position to render a public opinion regarding loss of value, as this would be in violation of their “code of ethics”. Many untrained adjusters pressure the conservator for a success percentage attributed to the anticipated condition of the artwork after treatment. A conservator may innocently write within a Treatment Proposal or Condition Report stating that “conservation may be 90% successful”, thinking they are circumventing the question of loss of value. The adjuster will simply interpret this as meaning the value, post restoration, is 90% of the value prior to restoration. One way for the conservator to avoid such a misrepresentation is to clearly state that the success rate of the conservation is by no means a representation of a perceived loss of value.

 Please contact me with any questions that you may have.

Cris Drugan, ISA-AM, CIPM


3 Responses to “Art Damage & Diminished Value”

  1. Cris,
    You’ve made some very good points. From the perspective of a fine art conservator, perhaps I can add a word or two?

    “Pre-existing condition” is a buzz word that is important to insurance companies. A conservator may be the only one to be able to correctly identify previous restorations, especially where some heavy handed restorations were done a long time ago. Perhaps the item was not as valuable as the owner thought? And now that it is damaged, and the difficulties come to light, the insurance company gets hit for the loss of value if the pre-existing condition isn’t made known.

    Pre-exisiting condition is also a guideline for not authorizing too much repair work. This is a difficult issue since most restoration specialists are chosen by the insured and the service provider is trying to please his client.

    Another “loss of value” point of interest is the question, “What is the value of the damaged item?” Excellent quality conservation treatments, therefore, can give back to the artwork some or all of its value in some cases, depending on the severity of the damage as you have pointed out. But, once again as a comparison, before treatment, what is the item worth in its damaged state? Of course, inept restorations can complicate condition and valuation matters.

    The words on treatment reports can be problematic for restoration specialists. We pretend we are doctors and like our reports to sound like technical documentation, detailing treatments and materials utilized. This is usually misinterpreted to mean something negative for the condition of the artwork, especially if the restoration specialist isn’t careful in expressing condition. The customers, on the other hand – especially dealers- like the conservator to write up a narrative on how wonderful his artwork is. The conservator’s report is not meant to be a sales tool and conservators resist being manipulated as such by owners. Either report can affect the sales hype of a painting, for example. One way to solve this dilemma is to encourage dialog between restoration specialist, insurance company and owner to modify the reports to meet everyone’s needs, which is usually possible if people are reasonable.

    Scott M. Haskins
    805 564 3438

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