A friend consigned three paintings to a posh gallery in Chelsea. The gallery quietly went bankrupt. One morning, the Sheriff locked the doors, and the bank seized all assets inside—including my friend’s art. He called his insurer to claim “Theft.” They denied it. “It wasn’t stolen,” they said. “It was seized by a creditor. That’s a civil matter.”
Key Takeaways
- Seizure is Not Theft: Insurance covers physical loss. It does not cover you losing title because of a bad contract.
- The UCC-1 Filing: In the US, if you consign art, you must file a UCC-1 financing statement. This tells the world “This art belongs to me, not the gallery.” Without it, the gallery’s creditors can legally take your art.
- “Entrustment” Exclusion: Policies often exclude theft by someone to whom you “entrusted” the property.
- Consignment Insurance: Usually, the gallery insures the art while on their premises. But if they lapse on payments, their insurance lapses too.
The “Why” (The Trap): The Conversion Exclusion
This is called “Conversion.” It means someone legally in possession of your goods keeps them or loses them to creditors.
Most policies exclude: “Loss resulting from… misappropriation, secretion, conversion, infidelity or any dishonest act on the part of the person to whom the property may be entrusted.”
[IMAGE: Screenshot of a UCC-1 Financing Statement form]
The Investigation: I Called Them
I asked insurers who pays when the gallery goes bust.
1. The Gallery’s Insurance
- Scenario: Gallery goes bankrupt.
- Result: Policy likely cancelled for non-payment of premium. No coverage.
2. Your Personal Floater (Chubb/Travelers)
- Scenario: You claim theft.
- Result: Likely denied under “Entrustment/Conversion” exclusions. However, some top-tier policies do cover this if you can prove you had a written consignment agreement.
3. Legal Action
- Scenario: You sue the bank.
- Result: Without a UCC-1, you are an “unsecured creditor.” You get pennies on the dollar.
Comparison Table
| Action | Result in Bankruptcy | Insurance Payout |
| No UCC-1 Filing | Art seized by Bank | Denied (Conversion) |
| With UCC-1 Filing | Art returned to You | N/A (Art is safe) |
| Verbal Agreement | You lose the art | Denied |
Step-by-Step Action Plan
- File the UCC-1: Before sending art to a gallery, file this form with the Secretary of State. It costs about $20. It protects your ownership.
- Written Consignment Agreement: Never do a handshake deal. The contract must state the gallery insures the work “Wall-to-Wall.”
- Request their COI: Get the gallery’s Certificate of Insurance naming you as “Loss Payee.”
- Notify Your Insurer: Tell your agent the art is at the gallery. Keep it on your policy as a backup (contingent coverage).
FAQ Section
What is a UCC-1?
It stands for Uniform Commercial Code. It effectively puts a public “lien” on the artwork so creditors know it’s not the gallery’s asset.
Does this apply to auction houses?
Yes, but major houses (Sotheby’s/Christie’s) are financially stable. Small regional auction houses are risky; use a UCC-1.
If the gallery owner runs away with the art?
That is “theft by bailee.” Some high-end policies cover this, but standard ones often exclude theft by people you trusted.