Note #5:
Museum Insurance

• Introduction
• Types of Insurance
• Risk Management
• Shop Around
• 1. Insurance for Museum Visitors: Public Liability and Property Damage
• 2. Insurance for Museum Employees (paid and unpaid)
• 3. Insurance for the Collection
• 4. Insurance for the Museum Building and its Contents (excluding collections)
• 5. Insurance for Acts of Crime
• 6. Miscellaneous Insurance
• Summary
• Bibliography

---

All museums, whether well-established or just in the first stages of formation, should consider having insurance coverage. Insurance protects a museum against the financial risks of damage and loss. Like any major purchase, buying insurance requires a certain amount of study, discussion and comparison, especially since museum insurance is different from that of other institutions.

What is insurance? Simply put, it is a form of monetary protection (underwriting) provided by the insurer (an insurance company) for the insured party (the museum) in case the museum suffers a loss or damage of some sort. In exchange for this protection, the museum pays a fee (the premium) to the insurance company. The museum's governing body deals with the insurance company through an intermediary (the insurance agent or broker). Insurance, in effect, is a contract between the museum and its insurance company.

The museum, whether large or small, should have some type of insurance in case of damage or loss. No museum could easily afford the cost of a lawsuit, or of replacing buildings, collections, or supplies. Since insurance is of such importance to the museum, a special committee should be set up to manage it.

Types of Insurance

There are six categories of insurance the museum might consider. Of these, three are vital. One deals with threats to individuals and their property, including Public Liability and Property Damage, Legal Liability, and either Worker's Compensation or Employer's Liability. The second is Fine Arts insurance which insures the collection. The third provides protection for the museum building and its contents (excluding collections). This includes Fire coverage and Fire and Extended coverage. There are other types of insurance detailed later in this paper, and the Insurance Committee should carry those which are appropriate.

The amount of insurance the museum carries may vary depending on the coverage. Here is a list of four options the Committee might choose:

1. Insurance to cover full cost of a damage or injury.

2. Insurance to cover part of the cost of a damage or injury. The premium for such a policy would be lower than the first option.

3. Insurance to cover only catastrophic loss. Because most losses are not catastrophic, the insurance company could again offer this kind of coverage at a lower premium than the first option.

4. Self-insurance. Instead of purchasing commercial insurance, the museum sets aside the money normally used to pay insurance premiums. This money can be used to cover minor losses.

Risk Management

Whether or not there is insurance coverage, the museum can reduce the chances of mishap. This process of reducing risk is called risk management. The following are steps the museum can take to reduce risk and possibly lower insurance premiums.

• install fire alarms, burglar alarms, smoke alarms, and sprinklers
• increase outdoor lighting
• ask for regular police and fire department inspections
• keep the museum premises neat and clean

The museum should report any new hazards to its insurance company. The following are examples of a new use or changed situation that should be recorded in writing and sent to the company.

• fire hazards such as the regular use of Varsol and other solvents
• installation of polystyrene (eg. Styrofoam) insulation
• new off-site premises
• building additions or changes in use of any kind, especially if the new use is as a tearoom or kitchen.
• changes in workshop processes or materials

If the museum neglects to report such hazards to its insurance company, and if an unreported hazard results in a loss or damage, the insurance company can refuse to pay for the damage simply because the hazard was not reported.

Shop Around

A museum can save money by comparing rates and companies. Compared to other kinds of institutions, the losses suffered by museums are unusually low, and commercial insurance is a competitive field.

The Insurance Committee should regularly review the museum's insurance policy. Such a review can involve contacting other institutions (particularly museums) to compare services. The Committee should also ask several insurance companies what experience they have with museum coverage. Then, specifying the museum's needs, the committee can solicit bids for the lowest premiums and broadest coverage.

Insurance is expensive. Just as you compare rates for car insurance, you should compare rates for museum insurance. If another firm can provide the necessary coverage at a lower rate, switch! This is not unethical. In fact, it helps to keep the insurance field competitive, resulting in better service for the museum.

Six categories of insurance were discussed earlier in this note. They include insurance for:

1. museum visitors
2. museum employees (paid and unpaid)
3. the collection
4. the museum building and its contents (excluding collections)
5. acts of crime
6. miscellaneous

Descriptions of the specific types of insurance within each category are listed below.

1. INSURANCE FOR MUSEUM VISITORS: Public Liability and Property Damage

Once the museum opens its doors to the public, it assumes responsibility not only for the public's safety, but also for the safety of their property while they are on the museum premises. If a visitor dies, or is injured, or if his property is damaged because of negligence of the museum's personnel, the museum's governing body may be held liable. Good housekeeping can reduce the chance of damage to property or personal injury, but cannot guarantee that such losses will not occur. For this reason, Public Liability and Property Damage insurance is a must for all museums. Fortunately this type of insurance tends to be relatively inexpensive.

2. INSURANCE FOR MUSEUM EMPLOYEES (paid and unpaid)

Worker's Compensation: This coverage insures only paid staff in case they are injured or killed because of the working environment. Consider this essential.

Employer's Liability: This coverage can insure volunteers as well as paid staff. It is basically the same as Worker's Compensation. Not only is it inexpensive, Employer's Liability is also essential if the museum uses volunteers.

Automobile Insurance: The owner of a motor vehicle is liable for all damages caused by that vehicle whenever he has consented to its use. If the museum owns a motor vehicle, it must protect itself by carrying commercial automobile insurance. If the museum does not own a motor vehicle, and requires its employees to use their own vehicles on museum business, either the museum or the employees must insure these vehicles. Non-owned automobile insurance is usually reasonably priced. Although the minimum required coverage is $200,000, at least $1,000,000 coverage should be provided. A lawsuit following an accident could be very expensive.

Legal Liability: The cost of legal counsel is covered by Legal Liability. If the museum is presented with a claim, whether or not it is responsible, significant costs will be incurred. For this reason, Legal Liability is also recommended.

3. INSURANCE FOR THE COLLECTION

Most insurance companies require a detailed inventory of all the artifacts and their appraised values. The museum's registration records should provide enough information for an inventory. Appraisals can be sought from a curator, a professional appraiser or a reputable antique dealer. Condition reports are highly recommended for all loaned material as it leaves and/or enters the museum. This enables museum staff to determine the extent of damage or loss and provides documentation in case of a claim.

Fine Arts Floater: This coverage applies to the entire museum collection, not just fine arts. In addition to insuring artifacts within the museum, a Fine Arts Floater insures artifacts on loan, from the moment they leave the museum until the moment they return. This is also called door-to-door, or nail-to-nail coverage. A Fine Arts Floater covers loans over a large geographical area, usually continental North America. It is very important because it is usually classified as an "All Risks" type of insurance. This means literally that all risks are covered except those which are specifically excluded. The alternative, "Named Perils", is a more restrictive coverage, limited to the specific perils listed in the policy. A Fine Arts Floater classified as All Risks is highly recommended. Since some insurance agents may not be familiar with Fine Arts Floaters, the museum should explain that this type of insurance has a low loss ratio (the losses paid for by the insurance company are low). Because of this, the museum should bargain for the lowest possible premium.

Fire and Extended Coverage: In addition to coverage for fire, this insurance includes storms, floods, sprinkler leakage, explosion, etc. Since not all risks are covered, the Committee should examine this policy carefully to make sure that nothing important has been excluded.

4. INSURANCE FOR THE MUSEUM BUILDING AND ITS CONTENTS (excluding collections)

This category protects the museum building(s) and contents such as equipment, furniture, gift shop inventory, workshops and laboratories. There are two specific types of insurance in this category -- Fire coverage and Fire and Extended coverage.

Fire Coverage: Coverage is provided for fire, smoke and water damage. Since this is a limited type of coverage, the premiums are low.

Fire and Extended Coverage: Coverage is provided for fire, smoke and water, storms, floods, sprinkler leakage, explosion, etc. Since not all risks are covered, the Committee should examine this policy carefully to make sure that nothing important has been excluded.

5. INSURANCE FOR ACTS OF CRIME

Burglary: Burglary means theft with evidence of forcible entry. Should a burglary occur, notify the police immediately. During the investigation the museum must be able to provide a detailed description of the stolen items. If the museum purchases burglary insurance, it must know accurately the value of the objects it is to insure. This can be done by museum staff for most objects. For objects of exceptional value, the insurance company may require a formal appraisal by a licensed appraiser. When evaluations or appraisals have been done, the museum will know just how much insurance to buy, thus saving resources.

Theft: Theft is stealing without forcible entry. Theft tends to be more difficult to prove than burglary; it is possible that missing items have been misplaced rather than stolen. Carefully kept inventory records, particularly important during the movement of objects, can help to trace misplaced or stolen objects. Because of its broader application, theft insurance is more expensive than burglary insurance.

Vandalism: This is another crime causing damage to objects or buildings. In addition to security measures taken to prevent burglary and theft, good housekeeping is often an effective means of discouraging vandalism. Clean, tidy and damage-free buildings are less likely to attract vandals than those already in a state of disrepair. The committee may still find it desirable to have insurance against vandalism.

Fidelity Bonding: This protects the museum against acts of dishonesty by museum employees. It is normally inexpensive. One of the benefits of Fidelity Bonding is that the backgrounds of potential employees can be checked for possible criminal activities. Such a service may prove useful if the museum is interviewing a job applicant who is not well known in the community.

6. MISCELLANEOUS INSURANCE

Employee Benefits: This protects the health and welfare of employees. It can be provided for both paid and unpaid staff, and supplies such benefits as hospital care, dental and vision care plans, and life insurance. Another employee benefit might be a pension plan for salaried staff to supplement the federal Canadian Pension Plan.

Plate Glass: This coverage might be provided if large sheets of glass or mirrors are present in the museum. It is usually applicable only to the damaging of large mirrors and large window panes.

Boiler Insurance: If the museum has a pressurized vessel such as a steam boiler or compressed air storage tank, Boiler Insurance may be carried. The museum is liable for injury or damage caused by an exploded vessel. If its pressurized vessels are inspected regularly, this coverage might not be necessary.

Inland Marine: This normally insures material in transit and in warehouses outside the museum. It can include coverage of the collection, but does not cover material loaned to another institution when the material is in the institution -- only while it is in transit.

Carrier's Insurance: Artifacts, equipment, and other material can be insured with Carrier's Insurance while in transit outside the museum. The museum pays a fee based on the materials' weight, which can be determined at a truck weigh station. If the museum has lightweight material to be moved by truck, Carrier's Insurance would probably be more economical than Inland Marine, but its coverage is limited.

Summary

The governing body of the museum has a responsibility to protect not only the museum collection, but the buildings that house it, the staff that work with it, and the public that visit it. Good insurance is part of this responsibility. This paper provides a simple introduction to the complicated topic of insurance. The Insurance Committee should follow up with a detailed investigation of the museum's needs and the available options.

Bibliography

Amirault, E., and Archer, M. Canadian Business Law. Toronto: Methuen 1976.

Dudley, Dorothy, Irma B. Wilkinson, et al. Museum Registration Methods. Washington, D.C.: American Association of Museums, 1979).

DuBose, Beverly Jr. "Insuring Against Loss." Technical Leaflet No. 50. Nashville, TN: American Association for State and Local History, 1969.

Fennelly, Lawrence J, editor. Handbook of Loss Prevention and Crime Prevention. Boston, MA: Butterworths, 1982.

Green, Gion. Introduction to Security. Boston, MA: Butterworths, 1981.

Hodgins, Rodney. "Our Treasures Need Protection." Canadian Security (February/March 1988).

Inland Marine Underwriters Association. Museums' and Galleries' Guide to Property Loss Control. New York, NY: Inland Marine Underwriters Association, 1988.

Insuring Business Risks in Canada. Toronto: International Self-Counsel Press Ltd., 1978.

Laverty, Francis. The Insurance Law of Canada. Toronto: The Carswell Company, 1936.

Legislature of Ontario. Revised Statutes of Ontario, (The Insurance Act) Toronto: The Queen's Printer, 1990.

National Fire Protection Association. Protection of Museums and Museum Collections. Quincy, MA: National Fire Protection Association, 1985.

Nauert, Patricia and Caroline M. Black. Fine Arts Insurance: A Handbook for Art Museums. Washington: Association of Art Museum Directors, 1979.

Stolow, Nathan, ed. Conservation and Exhibitions. Boston, MA: Butterworths, 1985.

Smyth, J.E., and Soberman, D.A. The Law and Business Administration in Canada. Toronto: Prentice-Hall, 1967.

Tanner, Sonja. "Insurance -- A Guide for Museums." Ontario Museum Association Quarterly, 9:4 (Autumn 1980).

Tillotson, Robert G. Museum Security. Paris: International Council of Museums, 1979.

Welford, Alfred. The Law Relating to Accident Insurance. London: Butterworth Publishing Company, 1932.