The Flaums paid $50,000 for a painting, believed to be a Renoir, in 1976. It hung in their home and, in 2005, was insured under a fine arts endorsement attached to a HO policy issued by Great Northern Insurance (Northern). The Flaums paid more than $3,500 in annual premiums for the endorsement which, at last renewal, listed a value for the painting at $350,000.

In 2008, the Flaums attempted to sell the painting via an auction. The auction house later declined to sell the painting and the Flaums were told, verbally, that the painting was not authentic. The Flaums, in years past, had received information from a different source that the painting was authentic but, again, the information was not provided in writing.

Relying on the auction house information, the Flaum’s filed a claim of $525,000, alleging loss of value of their painting. The insurer declined the claim on the grounds that no physical loss occurred under the fine arts coverage. The Flaums sued and Northern countered with a request of summary judgment that no obligation to provide coverage existed.

The court reviewed the Flaums’ argument that the policy language indicated “all risks coverage” and that the insurer had accepted the painting as authentic when it agreed to insure the property, including the acceptance of renewal premiums. The insurer countered by pointing out that the policy required a valid loss to involve physical loss or damage and that the painting was returned and hung, without any physical damage, in the Flaums’ residence. The insurer’s position was that, while the Flaums were victimized by possible fraud or forgery, they did not suffer an actual loss or loss of value as the painting was not a Renoir.

The court agreed with the insurer’s argument and granted its motion to dismiss.

Mitchel Flaum and Constance Flaum, individually and as Trustee of the Trust u/w/o Erna Stern f/b/o Constance Flaum, Plaintiffs. v. Great Northern Insurance Company and Chubb Group of Insurance Companies, Defendants SupCt, Westchester County, New York Slip Op. 20253. Court of Appeals of Kansas June 24, 2010.