Independent Appraisal Key to Dispute Over Damaged Picasso, Expert Says

OLDWICK, N.J. February 26 (BestWire) — Before casino magnate Steve Wynn accidentally poked his elbow into Pablo Picasso's 1932 portrait, "La Reve," he was expecting to sell the masterpiece for a cool $139 million, which would have made the transaction the most expensive in fine art history.

Today, although the painting has been repaired, Wynn says the masterpiece is worth no more than $85 million and is seeking to collect the depreciated value, totalling $54 million, from insurer Lloyd's.

Under the fine art coverage Wynn purchased, he is entitled to cost of restoration, as well as loss of value following restoration of his damaged artwork. So, why is this case in court?

Tom Pratt, a director with the California-based Thomson & Pratt, a broker specializing in fine art coverage, is not involved in this case, but has examined some of the relevant documents. He spoke to BestWeek recently about the issues at stake, and why an independent valuation would be critical in resolving the lawsuit.

Q: So, what's this dispute all about?

A: There appears to be a dispute regarding the loss of value. Mr. Wynn is saying one thing, Lloyd's is saying another. And from the documents I've received, it just appears there's some miscommunication or dragging of the feet because of the value of the claim.

Q: What kind of insurance and how much of it did Wynn have on this painting?

A: From the documents, it appears what he has is a fine art insurance policy stated for $350 million for the policy limits. They're saying that there was a $139 million offer, but if there's no bona fide sales agreement, and it's just a verbal transaction, then there's really no proof to justify that it is a $139 million piece. If he has a contract, then that's the value of the painting.

Q: So, what Wynn wants is loss of value for something he damaged. You don't get loss of value when you crash your vehicle. Why is fine art different?

A: The reason is with fine art, the art appreciates, whereas with your car, television or other property, it depreciates. So, with this particular case, the painting has appreciated and if you follow the art market, the prices are just skyrocketing. In these policies for fine art, they are all risks except for those perils that are specifically excluded. In the documents that I've reviewed, there's no such exclusion.It's a covered loss.

Q: Do you think this is a case where Lloyd's is simply dragging its feet?

A: I don't know if they are. From a business decision, they have to make sure they pay the right amount. They want to do the right thing, from what I've reviewed. It's just a matter of getting to the right number.

Q: You've seen a lot of these disputes, is this the type of case that could be settled?

A: I think it could be. Both parties need to be communicate. The crux of the situation is there needs to be an independent appraisal— a disinterested third party—that can determine what the value of the piece is after it's been restored. Then, they have a good idea and good basis as to if there was a sales agreement and what that particular value of the piece is now after the restoration.

Check out http://www.BestdayAudio.com for the audio interview. It ran on Feb. 22, 2007
by David Dankwa, associate editor, BestWeek

Transcript:

Tom Pratt on Steve Wynn's Insurance Dispute Over a Damaged Picasso

OLDWICK, N.J. February 27 (BestWire) — A dispute between casino developer Steve Wynn and Lloyd's is raising questions about the ultimate value of expensive artwork accidentally damaged at an insured's own hands. Or in this case, their own elbow, which is how Wynn reportedly poked a hole in a 1932 painting by Pablo Picasso. Tom Pratt of Thompson & Pratt Insurance Associates Inc. specializes in insuring fine art, and recently explored this topic with David Dankwa of BestWeek. An audio file of this interview is available at www.bestdayaudio.com

BESTWEEK: I’m David Dankwa with BestDay Audio. Joining us on the phone is Tom Pratt, a director with the California-based Thompson & Pratt, which is a specialist broker in fine art insurance. In the art insurance world Tom is known as the ‘Fine Art Guy.’ He’s an expert witness for art-insurance-related matters. Tom, welcome to the program.

MR. PRATT: Thank you, David. I’m really pleased to be a part of this.

BESTWEEK: Great. We invited you over to discuss the ongoing litigation between the casino magnate Steve Wynn and Lloyd’s of London over damage to a Picasso, also known as the “Le Reve.” Tom, you’re not involved in this case but you’ve seen some of the relevant documentation. Give us some of the basics. What’s this dispute about?

MR. PRATT: It appears to be there’s a dispute regarding the loss of value. Mr. Wynn is saying one thing. Lloyd’s is saying another. From the documents that I’ve received, it just appears that there’s either some miscommunication or there’s just some dragging of the feet because of the value of the claim.

BESTWEEK: What kind of insurance, and how much of it, did Steve Wynn have on this painting?

MR. PRATT: From the documents, it appears that what he has is a fine arts insurance policy and it’s stated for $350 million for the policy limits. Now, they’re saying that there was a $139 million offer. But if there’s no bona fide sales agreement or if it’s just a verbal transaction, then there’s really no proof to justify that it is a $139 million piece.

BESTWEEK: Well, what you’re talking about is that Wynn claims that he had an offer from somebody to buy the painting for $139 million. If that is true, then that number is the true value of the painting, right?

MR. PRATT: If it is a bona fide sales agreement, he has a contract, then that is the value of the painting, correct.

BESTWEEK: And also what he’s looking for is the loss of value of the painting following the restoration. Is it bad policy for insurers to pay for the depreciated value of a property when damage is done by the owner? You don’t get that sort of compensation, loss of value, when you crash your vehicle — in this case, carelessly. Why is fine art different?

MR. PRATT: The reason being, David, is because with fine art, the art appreciates, whereas with your car, your television or other property, it depreciates. So with this particular case, the painting has appreciated. If you follow or track the art market right now, the prices are just skyrocketing. In these policies for fine art, they are all-risk except for those perils that are specifically excluded. In the policy documents that I reviewed, there is no exclusion stating that if the owner damages the piece, then it’s [not] covered, it’s a covered loss.

BESTWEEK: That’s what an all-risk policy is, right?

MR. PRATT: Correct.

BESTWEEK: You’ve also seen a lot of these disputes. Is this the type of case that can be easily settled?

MR. PRATT: I think it could be. I just think that both parties need to communicate. I think also the crux of the situation is that there needs to be an independent appraisal by both parties that they agree upon, an appraiser that’s a disinterested third party that can determine what the value of the piece is after it’s been restored. Then they have a good idea and a good basis as to, if there was a sales agreement for the $139 million, and then what that particular value of the piece is now after the restoration.

BESTWEEK: Do you think this is a case whereby Lloyd’s is simply dragging their feet?

MR. PRATT: I don’t know based on the information I’ve received, if they are. I just think that also, [it's a business decision and] they want to make sure that they pay the right amount. They don’t want to pay too much. They don’t want to pay too little. They want to do the right thing, from what I’ve reviewed. But it just is a matter of getting to that right number.

BESTWEEK: This has been a very interesting conversation. Thanks for your insights, Tom.

MR. PRATT: You’re welcome.

BESTWEEK: That was Tom Pratt with the California-based Thompson & Pratt and I’m David Dankwa for BestDay Audio.