Andy Warhol Art Authentication Board Owed Coverage Under Directors and Officers Policy

The Andy Warhol Foundation for the Visual Arts, Inc. v. Philadelphia Indemnity Ins. Co.Supreme Court of the State of New York, County of New York (Dec. 6. 2012)
The plaintiffs, Andy Warhol Foundation for the Visual Arts, Inc. and the Andy Warhol Art Authentication Board, Inc., beat a summary judgment motion brought on by their insurer, Philadelphia Indemnity Ins. Co (PIIC), seeking a judgment that it owed no coverage for defense costs incurred in an underlying class action.

The plaintiffs business awards grants to arts organizations, protects the legacy of Andy Warhol, and reviews pieces of art to determine if they were created by Warhol. The plaintiffs were insured by PIIC under a directors and officers policy (D&O policy) as well as a professional liability policy (E&O policy).

In the underlying claim, a party brought a claim against the plaintiffs for conspiracy when the plaintiffs determined that a painting was not created by Warhol. The party filed a class action complaint against the plaintiffs in the Southern District of New York on behalf of all persons who submitted Warhol artwork to the plaintiffs for review, alleging fraud and conduct in violation of the Lanham and Sherman Acts. The underlying complaint was dismissed in part, and a second underlying complaint was filed by a different party alleging the same allegations as the first years later.

PIIC was timely notified of both underlying actions, and denied coverage on both actions. PIIC agreed to cover $225,000 of the plaintiff’s defense costs for the first underlying action under the E&O policy but denied coverage under the D&O policy. After a threat of arbitration, PIIC agreed to pay an additional $1.775 million under the E&O policy and the parties agreed to stay proceedings under the D&O policy until after the underlying actions were settled.

Both underlying claims were dropped for lack of evidence, yet the plaintiffs had expended $4.6 million in defense costs which they then sought from PIIC pursuant to the D&O policy. PIIC brought a summary judgment motion, arguing that the claims were excluded from coverage under a “professional services exclusion” found in the policy. PIIC also argued that the plaintiffs failed to satisfy conditions of the stay agreement which the parties agreed to during the underlying litigation.

The court held that the authentication service did not constitute “professional services,” which was undefined in the policy, and thus the claims were not excluded under the policy. The court noted that the exclusion lists specific occupations that involve specialized knowledge, training or skills, and art authentication was not listed. Moreover, the other listed professional services did not relate to art authentication services in any way.

The court also found that the plaintiffs satisfied the terms of the stay agreement as the underlying claims were completely adjudicated and the plaintiffs did attempt to obtain reimbursement from the underlying plaintiffs, but were unsuccessful as the plaintiffs had no assets.