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Consignment and insurance


#1

Hello all. I have a question about insurance and consignment. I
have been approached by a store that wants to try some of my pieces
on consignment. However, the agreement mentions that any losses
should be claimed under my insurance. This sounds odd to me–while
it is at the store, should the store be responsible? Any thoughts
on the subject? Thanks!

Andrea L. McLester
http://almclester.netfirms.com
Tampa, FL


#2

Hello Andrea, I just asked your question of a local gallery that has
been in business for over 20 years. The owner tells me that
insureance is the responsibility of the artist. The gallery does
not have inventory when things are on consignment; therefore, they
can’t insure what is not in inventory. The gallery keeps records
for sales purposes, and does their best to guard and responsibly
display the art. Hope this helps. Judy in Kansas

Judy M. Willingham, R.S.
Biological and Agricultural Engineering
237 Seaton Hall
Kansas State University
Manhattan KS 66506
(785) 532-2936


#3

Andrea: I am a partner in a small gallery/studio in Mendocino,CA. We
opened our doors last November. We have insurance…but not for
theft. Since we are a small and new gallery the cost for theft
insurance was prohibitive. We also have a statement in our
consignment agreement Re: losses by theft are the responsibility of
the consignee. Do we wish we had theft insurance? You bet! We do
have an alarm system and a great safe that we put our jewelry in
every night. I have found that most small galleries do not carry
theft insurance so it is not unusual. It is wise to carry your own
insurance. Hope this helps.

Linda Crawford
Linda Crawford Designs
Willits, CA
http://www.lindacrawforddesigns.com
"If you don’t know where you are going, then it doesn’t matter which
road you take, does it?"
Cheshire Cat in Alice in the Wonderland


#4

Hello Andrea! Of all the retailers I’ve asked to put my jewelry in
consignment, none would pay for insurance. The only time the
retailer needs an insurance is when he buys your jewelry. Covering
your pieces in consignment is as the same as covering your
merchandise in stock, but fee varies depending on the chances of the
retailers from being robbed, and the number of retailers that carry
your jewelry.

Something you’ll have to check with your local jurisdiction: here in
Quebec, when you place products in consignment, it’s considered as
if you had already sold them to the retailer, meaning that if they
go bankrupt, you lose your jewelry, even if you did not sell it.
It’s liquidated as part of the store’s merchandise and the chances
of winning a lawsuit against the bankrupt guys are thin, so be
careful.

Have a nice day!
Benoit Hamel


#5

Anrdea, While I had my store I was responsible for any consignment
items at my store. I had to follow the requirements of my insurance
carrier for the items to be covered. However, this did mean that I
needed to increase my insurance coverage and bare the additional
expense. I believe the store you are dealing with just does not want
to pay the extra premium.

Ray Smith
AdvancedSearchEnginePositioning.Com


#6
 However, the agreement mentions that any losses should be claimed
under my insurance.  This sounds odd to me-- 

Hi Andrea, That sounds odd to me, as well. In my consignment
agreement, which I have provided to galleries as an artist, I insist
that the gallery is responsible for the loss of merchandise,
regardless of the reason (theft, misplaced, negligence, etc.). I know
we all need the business, but I would be very leery of an outlet that
did not have sufficient insurance to cover the merchandise in their
store.

You may want to consider negotiation out of that clause. Strike it
out with a pen, and initial. Have the gallery also initial, and keep
a copy. Any agreement is negotiable, but that doesn’t mean the
gallery will want to negotiate. It may be a bluff for those wilting
flowers who have been conditioned all their lives not to question
"authority." If they insist on keeping this clause, I would carefully
consider whether I want my stuff in their store.

How difficult do you think it would be for you to claim the loss on
your insurance, assuming your for-sale jewelry is covered, when you
explain that it was stolen from a retail establishment where you had
willingly left it? I suspect the insurance company would be quick to
deny a claim on the grounds that prudent care was not taken to
prevent the loss. I’m certainly not a lawyer or insurance adjuster…
I’ve just been on the “short end of the stick” a couple times.

All the best,
Dave
Dave Sebaste
Sebaste Studio and
Carolina Artisans’ Gallery
Charlotte, NC (USA)
dave@sebaste.com


#7

Hi Andrea, I would be hesitant (to say the least) to do business
with any store that wouldn’t insure my jewelry while it was in their
possession. And, yes, it sounds odd that they refuse to take this
responsibility. The consignment contract I use states, “These items
will be covered by Account s insurance against damage, fire and
theft and, if not sold, will be returned to Designer in same
condition they were received or else full wholesale price will be
paid to Designer.” I wouldn’t sign a contract that didn’t have some
similar provision.

Beth


#8

any losses should be claimed under my insurance. This sounds odd to
me

Andrea any business that can’t or won’t cover your work for at least
an agreed-upon nett value i.e. the percentage of any sale that would
have accrued to you after the store’s commission was deducted - isn’t
worth talking to.

And the same goes for exhibitions IMO :<D
Al Heywood


#9

A thought on this subject: several of you have commented that the
retailers insurance only covers what they actually have bought, or
own, not items on consignment. What about selling items with a
buy=back policy? Any items they don’t sell within x amount of days,
you buy back at the price paid. That way insurance would cover the
items. It would require a seller that trusts you enough to believe
you will be financially able to buy the items back in six months or
whatever. Just a thought- Anne


#10

Andrea, In my gallery, all work consigned to the gallery is covered
under my insurance. It is also my responsibility to be sure that it
is kept in locked cases, that I am careful when showing the jewelry,
and that it is locked in an approved safe at night and the alarms
are turned on. Consigned jewelry, in my opinion, is no different
that the jewelry belonging to my customers and entrusted to my care.

Sure, I could save a lot on my insurance premium by only insuring
the stuff that I actually own. In a gallery that is almost totally
consignment, that would leave me with almost a zero premium! Is it
fair to ask an artist to loan you their jewelry so you can sell it
at retail, then ask them to provide the insurance for your gallery?
Paying for insurance is part of the cost of doing retail, and is
part of your markup.

I have encountered retailers, and major competitions, that ask (or
require) the artist to insure their work on loan. In my opinion,
this is simply a way to make more money off the artists, and shows a
lack of respect. I refuse to loan my work to galleries, or
competitions, that require me to do this. If their is a loss, or
damage to your work, you will have a hard time collecting from your
insurance company. The premium for this insurance is also higher
than the premium that the gallery would pay, since you are asking an
insurance company to insure work without any actual guarantee of
proper security.

My advise is to say “NO” to these galleries. If more artists refused
to self-insure work on loan, the policy would stop. It could only
take one loss to ruin your business. Work with galleries that
respect the fact that you are providing them with inventory at your
expense, and you will have a much better long term relationship.

Just my two cents…
Doug Zaruba


#11

Any work consigned to a reputable gallery should definitely be
considered as a part of their declared inventory for insurance
purposes. All of the venues where my work is represented have
specific paperwork and procedure for entering consigned items in or
out of their inventory. This is the way in which they can show their
insurance carrier exactly what is physically present in their
establishment at any given moment.

If a gallery cannot afford to carry adequate insurance for your
consigned merchandise, then you should ask yourself if you can
afford to consign with them. Will your own insurance cover a loss in
this scenario? Even with your own insurance policy it is still
advisable to ask your agent exactly what losses would or would not
be covered if the consignee is not insured, or does not wish to
insure your work while it is in their custody.

Michael David Sturlin, jewelry artist @Michael_David_Sturl1


Michael Sturlin Studio, Scottsdale Arizona USA


#12

I too would be cautious w/ consigning. I’d left approximately
$3,000 worth of dichroic glass jewelry in an upscale shop in
Scottsdale, AZ. My friend whom I was visiting, was kind enough to
oversee it by stopping in occasionally. When she called me that the
store was going out of business, I attempted to contact the shop but
was ignored. I finally emailed giving 24 hours to rtn the
merchandise to my friend or the police would be notified. The shop
owner returned said merchandise to my friend who then shipped it to
me. I hate to think of a different outcome & feel fortunate my
friend was available to oversee the merchandise. Tread
cautiously, Audie Beller of Audie’s Images.


#13

I am going to jump into this conversation with another twist…I
was an Insurance Broker for twenty years and I was stung when a
business that I consigned jewelry to had a tax problem with the state
government of Colorado. They were able to confiscate everything in
the store for back tax’s owed and I had no recourse…

Rick Sindeband
Skystone and Silver
web www.skystoneandsilver.com


#14

Andrea: I do want to add to this topic. I mentioned that we do not
have theft insurance in our gallery…and we do have a clause in our
consignment agreement as well. But…we do not take jewelry in on
consignment…just wall art and sculpture. We are currently only
taking in consignments from friends that are well aware of what are
policy is. We are also very honest and if we did have a theft we
would reimburse the artist. As I mentioned before, we do have a great
safe that the jewelry goes into every night and an alarm system. We
are also in a very low crime area and it is rare that a theft
occurs.( I know once is enough!) We have insurance that covers
fire…etc., just not theft. We hope to have it by next year…if
things go well. So, I do agree with the others on being very careful
with who you consign with and insurance is a better way to go. I
have my own insurance since I do shows as well…I believe it is
good to have your own insurance if you have your own studio and leave
the studio with your jewelry. Adding to my 2 cents worth!

Linda Crawford
Linda Crawford Designs
Willits, CA
http://www.lindacrawforddesigns.com
"If you don’t know where you are going, then it doesn’t matter which
road you take, does it?"
– Cheshire Cat in Alice in the Wonderland


#15
      However, the agreement mentions that any losses should be
claimed under my insurance.  This sounds odd to me-- 

When entering into a consignment agreement, there’s the gallery’s
side and there’s the consignor’s side. The gallery owner tends to
want to lessen his/her liability as much as possible. This is the
primary reason for accepting consignors in the first place, i.e. no
capital investment for their inventory, other than store fixtures.
The consignor places items in good faith, without having the overhead
expenses and the bother of having and maintaining a storefront. I
have been on both ends of this stick.

The gallery owner gets paid generally from 25%-50%, and in some
cases 60% of the retail value of goods consigned. Yes, they do pay
the overhead and operating expenses, but for the privelege of
consigned goods, they are not paying for the costs of the goods or
the labor. The consignor gives up a fee for providing inventory for
the gallery owner, and while the goods are placed in the gallery,
those goods are not available to them for selling in any venue. In
addition, they have paid for shipping and insurance to and from the
place of consignment.

If you borrow money to buy a car, you are expected to buy enough
insurance to cover the loan until the loan is paid off, regardless of
how much value the car retains. This insurance often comes at a
premium (comprehensive plus liability). Why should it be expected
less for jewelry that is on loan?

There are times when I may not be the brightest bulb in the pack,
but I do understand if a bank won’t accept those kinds of risks, then
neither should I. Besides, if you ‘loan’ someone something, and you
tell them if any damage should occur, they will not be responsible
for it, do you think they will lovingly take care of it as if it’s
their own?

As far as how much they should be liable for, it needs to be for the
full price less the commission. Otherwise, if you only receive the
bare minimum to cover your costs and possibly labor, a lot of stuff
gets sold, then is claimed as being pilfered. They have the
opportunity to buy at wholesale costs and retain a higher markup,
rather than carrying consignment, but the decision should be made up
front, not somewhere down the line. If you have proven to be a good
seller, then it will be in the interests of the gallery owner to pay
less by choosing the wholesale route.

Just my humble, but painfully educated opinion.


#16
   Any work consigned to a reputable gallery should definitely be
considered as a part of their declared inventory for insurance
purposes. All of the venues where my work is represented have
specific paperwork and procedure for entering consigned items in
or out of their inventory. This is the way in which they can show
their insurance carrier exactly what is physically present in their
establishment at any given moment. 

True. But you MUST also be sure that you’ve protected yourself
against the store showing your items in inventory if they obtain
financing based on the value of their inventory. Cases have occured
with artists having work on consignement to a shop which then
declared bankruptcy after having obtained routine financing wherein
the business loan application used inventory as part of the business
value counted as collateral for the loans, a common practice. The
bank, having used the value of the consigned jewelry as part of the
inventory value, is then able to claim those works as collateral
which they then own, even if the work was only consigned. In some
cases, artists have actually had to turn back over to the bank work,
or even pay to the bank that works value, which had already been
returned to them from the store/gallery, because it had been in
inventory at the time the store took the loans, if the return occured
too soon before bankruptcy was declared. The artist is then
considered a creditor as with any other in the bankruptcy
proceedings. In some cases, artists have literally had to buy their
own work back from the bank to regain possession, even if the work
had never been paid for by the store.

It’s a rare situation, of course. But a dangerous one. Be sure to
check out the legalities in the state in which you’re doing business.
You may wish to consult a lawyer on this stuff before getting too much
into consignment. The laws were written with big manufacturers in
mind, for whom loosing some unpaid inventory to an account’s
bankruptcy is no different from having an unpaid loan or credit
account go bad. For artists, of course, it’s not quite the same.
You can avoid these liabilities by filing UCC forms for consignment
goods, but it can be a royal pain in the rear. Like I said, check
this out before it bites you. Be sure the issue is part of what
you’ve protected yourself against in your consignement contracts.

Peter Rowe


#17
Cases have occured with artists having work on consignement to a
shop which then declared bankruptcy 

I have a friend/mentor who went through this with a gallery that
went bankrupt. Not only did he lose his work to the gallery’s bank,
but also the display cases he loaned the gallery to display his work.
Live and learn… hopefully from the mistakes of others, rather than
your own.

All the best,

Dave


#18

I once consigned work to a gallery whose inventory was frozen as
part of the owner’s divorce proceedings. It took me more than a year
to get it back.

Janet Kofoed