Warhol Foundation Vindicated in Battle With Its Own Insurance Company

As the market for blue-chip modern and contemporary art continues to spiral ever higher, so have the stakes for giving a particular work a stamp of approval or denial. In recent years, exorbitant litigation and insurance costs have been a factor in propelling numerous artist foundations and estates out of the authentication game altogether. In the most significant case, the Andy Warhol Foundation announced in fall 2011 that it would cease authenticating works altogether and instead focus on its charitable mission, after having spent several years and millions of dollars defending a high-profile antitrust suit.

However, the Foundation recently — if belatedly — won a major fight against its insurance company over whether it can recoup the hefty legal defense fees relating to that case, which was eventually settled last November (2011). The suit was brought against the Warhol Foundation in 2007 by collector Joe Simon-Whelan who alleged fraud and collusion by its authentication arm and related entities after his 1965 red Warhol self-portrait (pictured), for which he paid almost $200,000 in 1989, was deemed inauthentic in two opinion letters. The Warhol Foundation hired Boies, Schiller & Flexner to represent it in the suit. Legal fees eventually climbed to $6.6 million.

That staggering total is the bone of contention in the current ruling. The Warhol Foundation, which had taken out several insurance policies with the Philadelphia Indemnity Insurance Company (PIIC), from 2002 to 2003, sought to recover the amount. But PIIC refused to pay up, citing several exclusions in one of the policies (it has so far paid out $2 million under one policy). The two sides became locked in litigation, with the Warhol board suing the insurer, and PIIC seeking summary judgment to dismiss the complaint in New York State Supreme Court.

However, last week, Judge O. Peter Sherwood, denied PIIC’s request and the exclusions it proposed, thereby paving the way for the Warhol Foundation to recover the outstanding $4.6 million plus interest its attorneys say is owed.

“The Foundation was forced to defend two meritless but costly lawsuits, and PIIC has wrongfully refused to honor its obligation under the policies to reimburse us for those costs,” Warhol board chair Michael Straus told ARTINFO. “We therefore intend to pursue a full recovery of the money from our insurer for the benefit of the artists and museums who depend on us for grants.”

Luke Nikas of Boies Schiller, which also represented the Warhol foundation in the PIIC case, argued the motion.

Nicholas Gravante Jr., also of Boies Schiller, was pleased with the result. “This decision eliminated the most important legal issues in the case — whether there is coverage (there is), whether any insurance policy exclusions eliminate coverage (they don’t)… the Foundation bought the insurance policies for exactly the circumstances at issue, and we are pleased that the Court has required PIIC to comply with them.”

A spokesman for PIIC said the firm did not wish to respond “at this time due to the ongoing legal case.”

— Eileen Kinsella