Why would I use an auction house to sell my antique? I could do that on eBay. It’s a case of horses for courses. You could spend your time online and get a generic quotation that might be reasonable or you could use a professional who will do all the work, find you the best option – not necessarily the cheapest – and help when a claim occurs.
What sort of insurances does an auction house need?
Generally, this falls into one or more of the flowing categories:
- Property
- Business interruption
- Liability
- Motor
- Professional indemnity
What do I gain from using an insurance broker?
Access to a wide range of policies and, much more importantly, experience and integrity. Internet companies can be cheaper because they don’t have to employ people who know anything more than how to type. A broker will also help with resolving any claim issues and will offer options and advice. All insurance brokers are required to hold professional indemnity insurance (see below) and are regulated, principally by the Financial Conduct Authority (FCA).
Property
If you own the buildings that you operate from, they need to be insured against a wide range of events – fire, flood, theft or attempted theft, malicious damage, lightning and even earthquake – and, most importantly, for the right amount. Many businesses insure their buildings for the market value but the correct sum insured is the rebuilding cost, including the cost of removing debris and paying professional fees. This is often significantly lower than the market value so insuring for the correct amount can save you significant sums.
The contents are often ignored but when you add up what it will cost you to replace desks, chairs, filing cabinets and even the office stationery that can be a lot of money.
Computers and computerised equipment – even a photocopier contains more computer power than did Apollo 11. Most policies can include computer breakdown and the loss of business therefrom – your system going down in the midst of an online auction could be costly.
Own stock can be a problem for auction houses where there can be problems with replacement values. Generally, the sum insured should be cost price plus a percentage for profit – often 10% – but see also business interruption.
Goods in trust is similarly problematic but that’s where the expertise of an auction house comes in as they are in the best position to provide a valuation.
Business interruption
What happens if a serious fire or flood (increasingly common thanks to climate change and the lack of drains maintenance by councils) affects your property? There are a number of options but principally:
- Loss of profit – this basically uses your accounts to work out how much you have lost due to not being able to work from your business address. If there are ways of mitigating losses, such as working from other premises, this is taken into account.
- Increased or additional cost of working – does what it says, covering the cost of getting yourself set up in suitable premises, moving the broadband and phones across, letting people who need to know how to get hold of you and so on.
Denial of access cover is important. I dealt with a claim a while back where a sinkhole on the only access road to a clients’ property prevented all access by road or on foot. The final cost was over £30,000. Not all policies cover this and, of those that do, some have very low cover limits.
There are a number of other options such as suppliers or customers extensions. If you rely heavily on a particular supplier of goods to be sold or a regular customer, you can cover losses caused by events at their premises.
Liability
This can be where a business can easily fail. You don’t have to be actually guilty of something for legal costs to become a nightmare. Liability insurance falls into three basic categories:
- Public liability – covers injury to persons and/or damage to third party property. Imagine taking a walk around your saleroom and finding a potential client wriggling under a fallen grandfather clock. Cover can also include your liability as a property owner or occupier. Trips and slips are the most common types of claim.
- Products liability – this can be difficult as the auction house generally does not own the property sold but can be involved as the intermediary. After many years with a particular antique shop client, we lost the business to one of the online companies. A few months later, we had a frantic call for help from them. A customer had purchased an item of furniture and had received a serious injury from a broken spring – puncturing her femoral artery. The insurer had responded by saying that they did not provide cover for second-hand goods despite the policy being in the name of ****** Antiques! All we could do by then was to recommend a solicitor that we knew. Legal costs and loss of reputation put the dealer out of business after a couple of years of the insurance company refusing to honour their obligation.
- Employers’ liability – if you can “hire, fire or direct the labour of” a person, they are your employee and you must have employers’ liability insurance. Even part-time or volunteer staff have to be covered. There are some very rare exceptions to this and some people do think that family businesses are exempt. Another case I dealt with was a silversmith/restoration company run by brothers. One threw an unfinished cigarette case to the other, who suffered a serious injury – severed wrist tendons – to his wrist. That cost the insurance company over £20,000.
Motor
Motor insurance is simple, isn’t it? You just go online and a meerkat works out your premium. But do you need business insurance? This is where you go to more than one place or work or maybe visit clients. Most policies only cover you for travel to one place of work. If you carry goods belonging to others, are you covered? Most policies would classify this as “hire & reward” so you need a good insurance broker to identify potential gaps in cover and to find ways to fill them.
Professional indemnity
Antiques programmes on TV often highlight items that sell for significantly higher prices than the estimates placed on them by experts. Those experts are often given thanks and praise – for getting it horribly wrong! Valuation is not a precise science and we all know of items that were once of value but are now out of fashion and vice-versa (I have a treasured pair of purple cord flares that I know will be worth something one day!) but on the day, the valuer should be able to make a reasonably educated guess with the item in front of them.
Auction prices are something of a mystery and the final sale price may simply depend on the right people being in the room (or online or on the phone) but surely the experts should be able to quote a figure somewhere in the ballpark? If someone does sell an item at auction for 10x or 100x the valuation, then that should come as a pleasant surprise? But what if that person opts to take the valuation as being correct and makes a private sale at, say, £1,000 when they could have received £10,000 or £100,000? In these increasingly litigious times, the odds of being sued for lots of money – not to mention having to pay legal fees – are pretty high. Indeed, losing such a case could have lasting financial consequences for the valuer plus the loss of confidence that the public will place in them in future.
A client of mine many years ago – one who didn’t believe in having more insurance than “necessary” – valued a house clearance for the estate of a local man and the executors accepted the amount. A single item from that clearance came up for sale at a local auction a few months later and sold for an amount of over ten times the total paid for the entire house contents. There was a suggestion that my client may have been acting fraudulently but there was no actual evidence and he was found not guilty in court (my personal view is that he had just made assumptions without checking on individual items and with no intent to deceive). However, the ensuing private court case and adverse publicity forced him into bankruptcy.
