COURT DECISIONS

Rough Notes, Sep 2005

Stolen Picasso triggers coverage dispute

Ronna Lerner was the executrix or administratrix of the estate of the late Nora Bergman. Ms. Bergman owned an original oil painting by Pablo Picasso which, after her death in 1998, her estate decided to sell. The painting was insured by Redland Insurance Company. The Redland policy provided in part that Redland agreed to pay "the agreed value in the schedule" for any covered total loss to scheduled articles. The agreed value for the painting listed in the schedule was $858,500. The policy also provided that, if there was other insurance available that applied to the property, the Redland insurance would apply as excess insurance over the other insurance.

The estate entered into an agreement with the Richard Gray Gallery to sell the painting on consignment. Under the agreement, the painting could not be sold for less than $2 million net to the estate. In addition, the painting was to stay in the sole custody and control of the gallery. Despite this condition, however, the gallery allowed an art dealer, Michel Cohen, to remove the painting from the gallery to show it to a potential buyer. Cohen told the gallery he had sold the painting for $2.2 million and tendered a check for that amount, less a $100,000 commission. He later put a stop payment on the check. In fact, Cohen had sold the painting for an amount in excess of $4 million.

On March 20, 2001, the estate filed suit against the Richard Gray Gallery and its insurer, Zurich American Insurance Company, to recover the value of the painting. The declared value of the painting under the Zurich policy was $2 million.

While it was pursuing recovery from Zurich, the estate contacted Redland regarding the disappearance of the painting. Redland requested more information from the estate, including the documents for proof of loss. According to Redland, the estate informed it that it did not intend to supply Redland with the requested information because it expected to resolve the claim through the Richard Gray Gallery and its insurers. Redland continued to pursue the matter, and sent a letter to the estate reminding it of its obligations under the policy to cooperate with Redland in the investigation of the matter and to refrain from entering into any kind of agreement that would jeopardize any of Redland's rights of recovery.

The estate eventually settled with Zurich in exchange for $2,005,000 from Zurich and $5,000 from Richard Gray. In addition, the estate executed a release, and agreed to cooperate with Zurich in its efforts to recover the insured value of the painting under the Redland policy, based on a theory that the market value exceeded the agreed value stated in the Zurich policy. At that point, Redland filed a declaratory judgment action, asking the court to find it had no duty to indemnify the estate or its assigns for any loss. The trial court concluded that the Redland policy was excess insurance, and that the insurable value was fixed at $858,500 with respect to the Redland policy, but not with respect to all other insurance. Accordingly, it found in favor of Redland; Zurich appealed.