The nail to nail module dealt with the movement of CUSTODY. This one deals with the movement of OWNERSHIP, and the starting point is that they do not move at the same instant. A work that has been sold often stays for days or weeks where it was, at the seller's, while ownership has already changed hands. Yet policies do not all follow the same marker: some follow ownership, others possession, and the interval between them is a hole nobody intended.
The sale must be broken into three moments, because contracts and laws do not pass risk at the same one: conclusion, payment and delivery. Depending on the parties' agreement and the applicable law, risk may pass at any of the three. Insurable interest follows ownership: without interest there is no insurance, and a policy covering property BELONGING to the insured stops covering the object the instant it ceases to belong to them, even if it still hangs on their wall.
On the buyer's side the relay exists but is conditional, and this is where the module meets the one on new acquisitions. Automatic cover generally runs from acquisition, a word that most often denotes conclusion of the contract rather than delivery. Depending on the wordings met on each side, one therefore obtains either an overlap, both policies responding at the same instant, or a hole, neither responding. The same texts produce one or the other according to when risk passed, which makes cross-reading indispensable and rare.
The classic hole has a recognizable shape worth remembering: sold, paid for, awaiting collection. The seller is no longer owner, so their policy no longer covers. The buyer's automatic cover frequently requires the property to be in their possession or under their control, which is not the case of an object left in the seller's hallway. The most exposed object in the whole chain, because it is being packed, moved and handled by people in a hurry, is also the one nobody covers.
The dealer's case adds a distinction their own policy knows and their clients do not. A sale from stock and a sale of a work received on consignment do not transfer the same thing: in the first the dealer sells what they own, in the second they pass on a third party's ownership. Their policy distinguishes stock from goods held for others, with different valuation bases as seen earlier, and the moment of transfer therefore does not have the same effects depending on the nature of the transaction.
The auction deserves its own treatment because it introduces a third-party draftsman. The fall of the hammer transfers something, but not necessarily risk: conditions of sale generally fix a moment and a period beyond which the buyer bears risk, whether or not they have collected the lot. It is therefore an auction house's standard conditions, written by a stranger to the insurance contract, that decide which of the two policies is on risk and from when. Neither the seller's insurer nor the buyer's had any say.
The question to ask at every sale is a single one and it is the same as in the consignment module, which is a good sign: if the object is destroyed tonight, who bears it and under which policy? The answer lies in no single document, but in three that never cite one another, the sale agreement, the seller's policy and the buyer's. Reading them together takes half an hour and is done once; not reading them is discovered on the day the object is in a box, in a hallway, and no longer belongs to whoever insures it.
A collector sells a sculpture for 420,000 euros to a foreign buyer. The agreement is signed on May 4, payment received on the 6th, and collection scheduled for May 19 once export formalities are obtained. The sale agreement is silent on the passing of risk. The seller's policy covers 'property belonging to the insured' present at their address. The buyer's policy automatically covers new acquisitions 'from acquisition', provided the property is in their possession or under their control. On May 12, water damage harms the sculpture, for 90,000 euros of restoration and depreciation. Each turns to their own insurer.
Both insurers can decline without bad faith, and that is the result the shape of the file makes predictable. The seller's objects that the property no longer belonged to him on May 12, the sale being concluded and paid, and its policy covering only property belonging to the insured. The buyer's objects that the property was neither in her possession nor under her control, since it sat at the seller's awaiting formalities. Both read their texts correctly, and the most exposed object in the chain is left uncovered for thirteen days. The competent professional's error here is to believe the sale agreement's silence is neutral: it is not, it refers to the applicable law to fix the passing of risk, and that default rule was obviously not written with these two policies in mind. The useful discussion therefore bears first on the applicable law and only then on the texts. Two remarks for the future. A one-line clause in the agreement, fixing the passing of risk at collection, would have kept the seller's policy on risk and closed the interval. And had the sale taken place at auction, the house's standard conditions would have decided, written by a third party neither insurer has ever spoken to.
- 01Custody and ownership do not move at the same instant, and policies do not all follow the same marker: the interval is a hole nobody intended.
- 02A policy covering property belonging to the insured stops at the moment ownership passes, even if the object has not moved a meter.
- 03The classic hole has a recognizable shape: sold, paid for, awaiting collection, which is the most exposed moment of the chain.
- 04At auction it is the house's standard conditions, written by a third party, that decide which of the two policies is on risk.
- 05A sale agreement's silence on the passing of risk is not neutral: it refers to a default rule written with no regard for the policies in play.