In 2006, Art+Auction magazine ran an article on the most pressing matters in art law. Lawyer Peter Stern weighed in that the most prevalent disputes he saw in his own practice, in terms of litigation, were those over title. Perhaps not coincidentally, that was the same year ARIS Insurance began offering what is now the only program for artwork title insurance worldwide. Title insurance, which runs from 1.5 to 4 percent of the appraised value of a purchase, protects owners in the event that another party claims title to a work in their possession; these days the ARIS name pops up on big banner ads on Sotheby’s Web site. ARTINFO spoke with ARIS president Judith Pearson.

Why is it important to have title insurance on an artwork?

For one thing, it creates financial permanence and security in the art transaction, which can’t happen without a third-party insurance product behind it because of the way art transactions are done in the world. So, for example, just because there may be an indemnity behind a transaction, it doesn’t mean that a company will have the financial stability to provide that indemnity. So unless you have a third-party risk-transfer method, you can’t have finality to the transaction. It affects everything from your typical buying and selling and gifting to how a trust and estate attorney might create the trust and estate plan.

The other issue is a valuation issue. Title has an effect on the economic value of a work of art, and it’s just not a credible valuation without understanding the ownership issues. If you have a piece of real estate where there are liens and encumbrances on it, nobody would buy it unless they were assured clear ownership. So it’s an application of valuation that every single asset class goes through, and up until now nobody really thought about it from an art perspective.

What was the impetus behind ARIS launching title insurance for art?

Ten years ago we had a small consulting business. We were consulting with buyers and sellers on art transactions with regard to the transactional side of it, not necessarily the art historical side, and one of our museum clients called up and said, “I’m advising a patron to buy a French Impressionist painting that was in Europe during World War II. No matter how much research we do, we can’t close the title. Neither the seller nor the owner are willing to indemnify if there is a title dispute.” My background is insurance. My partner’s background is law. So they basically said, “You, insurance person, and you, lawyer, solve the problem for me so I can feel comfortable having my patron close on this transaction.” So we created a one-off transaction for that particular purchase, and my partner and I stepped back and said, This is the most important issue in the art world today. Let’s see if we can solve it on a market basis.

What is behind most of the claims you see?

Our database suggests that only 25 percent of the claims are related to some form of theft, whether it was war loot or contemporary theft, like the case of Steven Spielberg [he bought a Norman Rockwell painting in 1989 that turned out to have been stolen]. Seventy-five percent of the claims are related to traditional liens and encumbrances.

There certainly are quite a few lawsuits that involve problems with the transfer of title on artworks. I’m thinking of the Red Elvis case, where collector Peter Brant purchased a Warhol painting in 2000 from a Swedish dealer, Anders Malmberg, for $2.9 million and some years later a collector claimed Malmberg sold the painting to Brant unlawfully. In that case, it was eventually deemed that Brant was, in fact, the artwork’s rightful owner. Can title insurance help out in some of these kinds of suits?

Absolutely. Part of what we bring to the table is an attempt to and a hope that we can get some consistent law in these matters. In the Peter Brant decision, that was a theft or authority-to-sell issue. In two other, more recent cases, one that went to the Supreme Court in Illinois and another that is playing out before our eyes, you have completely counter decisions. One is a case in Chicago, two years ago, where a couple, the Frigons, consigned works to a gallery that then sold the works without paying them. It was the first decision that affirmatively said, That’s theft in the chain of title, good title can’t be passed. So they won that decision against the insurance company for property because it was decided that it was theft, and they are now using that decision to go after the buyers of the work, who in theory bought it in good faith. The next one, which is playing out before our eyes, is Salander O’Reilly. Larry Salander was selling works and not paying off consignors. So, there are newer cases playing out that are changing the law, and good-faith buyers should be very worried about that.