How to quantify loss of value when art is damaged

It is widely recognised that, like the enduring standard of 'location, location, location' for the valuation of real estate, the touchstone when valuing works of art is 'condition, condition, condition'. 

Although this criterion is very well established, it is also troublesome that there is as yet no objective, uniform and definitive guide for measuring the loss of value factor for works of art that have been damaged.

However, there are a number of broadly accepted factors for determining loss or diminution of value. For example, premiums are commonly paid for works of art in pristine condition, while the importance and relevance of the artist – and of the work itself in their oeuvre – are also considerations.

Other factors critical to the loss of value, which is expressed as a percentage of the total value, are:

• the area and extent of damage
• the quality and extent of the conservation and restoration
• the market acceptability of the conserved or restored work of art
• the work's former condition history
• mediums, materials and rarity
• any inherent vice issues; that is, the intrinsic quality that causes some substances to spoil naturally
• living artists' rights.

An interesting example of this is Steve Wynn's widely publicised proposed sale of Picasso's 1932 painting Le Rêve to Steven Cohen in 2006 for a record $139m. Le Rêve was desirable, not only for the artist, provenance and subject matter, but also because it was known to be one of Picasso's works in its original condition.

Wynn had purchased this work in 2001 for an undisclosed sum – thought to be about $60m – from the Austrian banker and investor Wolfgang Fiotti. Fiotti had in turn purchased the work at Christie's for a record $48.4m in 1997. At that time, the artwork was cited as being in excellent condition.

Just before the proposed sale to Cohen, Wynn accidently put a two- or three-inch tear in the lower right quarter of the painting. The sale was cancelled since the work was no longer in its stated original condition. The artwork was subsequently restored at a cost of $90,000.

The insurance company, Lloyd's, agreed to pay the restoration cost and some additional related costs of about $22,000. 

Wynn sued Lloyd's for the loss of value in the US District Court for the Southern District of New York on 10 January 2007. He submitted a sworn statement of loss of value of $54m, reducing the value of the work to $85m.

This further illustrated the importance of the loss of value factor and perhaps, was a clear indication of its monetary importance.

The case was settled out of court for an undisclosed amount. This well-known instance may have provided a clearer basis for loss of value guidance, but unfortunately, no actual documentation or substantiation was made readily available to the public.

Six years later, in 2013, Wynn sold Le Rêve to Cohen for $155m, another record amount at that time. While this appears to exceed the proposed 2006 price, taking inflation into account that original figure of $139m in 2006 would have been $160.6m in 2013, while $155m in 2013 would have been equal to $134m in 2006.

Here, the importance of the artist and work and the area and extent of the damage were most relevant. Also of considerable concern was market acceptability after conservation and restoration. The prior condition of this work is not as yet known.

Wynn had consigned another Picasso, Le Marin, to Christie's New York in for sale in May 2018. The auction estimate was a minimum of $70m, with an expected figure of more than $100m, and carried a third-party guarantee.

Unfortunately, an employee from an independent company hired to decorate Christie's galleries apparently left an unsecured paint roller extension pole leaning on one of the walls. The pole fell and tore a 4.5-inch hole in the painting, which was being prepared for installation.

The insurance company for Christie's negotiated a settlement with Wynn's Sierra Fine Art company of $18.74m and subsequently filed a suit against the contractor. Christie's also agreed to pay conservation costs of $487,625 and hired two appraisers to assess the consequential loss of value.

Their conclusion was that Le Marin was actually worth $100m and had suffered a loss of value of 20% or $20m based on 'the extent of the physical damage to the painting and the accompanying reputational damage'. 

Only the information for the actual value conclusions appeared in several publications, including Bloomberg on 22 May 2020 and Hypebeast on 27 May 2020.

It would have been most useful to the art community to have access to the appraisers' narratives for their assessments of the loss-of-value considerations in Steadfast Insurance Co v TC Nugent Inc, 1:20-CV-03959, US District Court for the Southern District of New York, Manhattan.

In this case, and in so many others, the importance and relevance of the artist, the work and its rarity is evident. Any loss of value caused by damage to a work of artistic and historical importance and merit is most significant.

There have been several instances of damage to major works in public collections. In all instances, the cases were settled privately between the respective museums and their insurance agents, and again no information was made public.

Famously, the spraying of sulphuric acid on Rembrandt's The Night Watch in the Rijksmuseum in Amsterdam in 1990 is a modern example. There had been several earlier damaging attacks as well.

Simple removal of discoloured varnish, without any other complications, can often enhance the value of the work as well.

It is important for a valuer to assess the existing condition and the condition history of a work before any structural or aesthetic conservation or restoration. 

The prior condition of a work of art will always be a major element in the loss-of-value factor. The first instance of damage always results in the greater loss of value.

Application of a lining is another consideration when determining loss of value. Earlier methods of lining or relining a canvas customarily produced a loss of impasto and occasional migration of the wax adhesive to the surface.

In some cases, the prior lining can be removed, though, and some impasto might be restorable. This avenue should be considered when evaluating a significant work of art before considering the loss of value.

Perhaps one of the most vital elements in determining such loss is the market acceptance of a restored work of art. The art market has the ultimate voice in what the acceptable standard is.

All areas of collectability vary: restoration for automobiles seems to be desirable, but any restoration or replacement of a ceramic or glass object – except in very rare examples – is not readily accepted. The art market has its own standards, which must be considered.

It is hardly necessary to emphasise the importance of the quality of conservation and subsequent restoration itself either. Poor conservation or restoration can literally destroy a work of art.

One last universal factor, perhaps, is living artists' moral rights. A living artist has the right to determine how their work will be conserved or restored, and this must be considered when calculating loss of value.

There are many valuers who specialise in damage and loss valuations. These experts consider all the above aspects and the need for condition reports from professional conservators.

However, we are still in need of a more objective, less individual perspective for loss of value.