Insuring works of art requires care on theft terms and premiums

Only 5 or 10 percent of all stolen works of art, the Federal Bureau of Investigation says, is ever recovered. That's not a great record, but at least a small group of art collectors should be happy - they'll get their works back. Or will they?

Many works are recovered months or maybe years after the theft, and often an insurance claim has been paid. In such an instance, the insurer has title to the artwork and can do with it what the company likes.

These companies aren't in the business of collecting fine art, and they generally hope to dispose of pieces as quickly as possible. They may offer the works back to the original owner - in exchange for the amount of the claim, maybe more or less - or just put the art up for sale at auction. There are many options, but insurers don't make their money off recovered items.

Everything, insurance underwriters are quick to point out, is negotiable, and policies can have whatever riders and stipulations both insurer and client agree on. But artwork should be given special attention and may require its own separate policy, depending upon the value. This policy may include a general coverage for an entire collection (say, $10,000 worth of insurance), or each work in the collection may be listed at its appraised value. An annual appraisal might be suggested for the collection, which could determine the amount of insurance needed.

Up or down, the premiums will also be figured accordingly. It is also possible to ''schedule'' the works, so that insurance coverage and premiums go up a certain percentage periodically, however both sides choose to work it out.

Without some sort of ''fine-arts rider'' on an insurance policy - a relatively inexpensive addition, usually $50 annually for $10,000 in coverage - a collector may receive a settlement for a stolen or damaged work of art that is far below the piece's actual value.

Most regular insurance policies also have deductibles, some of which are rather high: If someone walks off with a signed etching or small sculpture, a $1 ,000 deductible may wipe out the possibility of a claim (although one could argue that the lower premiums paid because of the high deductible make up somewhat for the loss). Most ''fine arts riders'' have no deductible and everything is thereby protected.

''Riders,'' however, must be specific and spell out such things as what should happen if a stolen work for which a claim has been paid is recovered. Most collectors would like to reserve the right of first refusal. They might not want the work back if it has been damaged or if they are happier with the amount of the claim (especially if the value of the work has diminished). Additional costs, such as packing and shipping the work if it turns up overseas or legal fees if the question of ownership is to be decided in court, may also dissuade the original owner from taking it back.

''About 50 percent of the time, the original owners don't want the work back for some reason or another,'' said Huntington Block, president of the Washington , D.C.-based insurance company of the same name, ''and at that point we dispose of the work as best we can.''

He noted that his company paid claims on many of the stolen works of art that were recently found in the home of a Philadelphia physician, Henry Waxman, who has been charged with their theft. Dr. Waxman allegedly stole more than 100 small pieces, worth about $2 million, visiting art galleries and putting works into shopping bags. The police have not yet released the artworks, but Mr. Block reported that several of the galleries were not eager to have all of their works returned.

Some policyholders choose to write into their ''fine arts rider'' the process by which a recovered work is sold back to them. In some cases, it may be for simply the amount of the claim. But if the work has been lost for many years, during which time its value has increased greatly, the insurer may also receive some additional compensation.

Most collectors have some sort of ''blanket'' coverage for their works, although it is usually less than the entire appraised value simply because the premiums would be otherwise too high.

Art galleries, for instance, may have $1 million in insurance coverage, even if their holdings are twice that in value. The high turnover of works makes it impossible to keep up with reappraisal and inventory requirements of itemized coverage.

Most museums have insurance only on the building, using the money that would have paid the enormous premiums for the collection on security systems (guards, cameras, sprinklers, etc.).

All those who insure their art collections are assuming that damage or theft won't be total. Some people don't bother to report small damage or theft, fearing their premiums will go up a lot faster than their claims will be settled.

William F. Smith, an insurance adjuster who was instrumental in tracking down the stolen works of art in Dr. Waxman's home, pointed out that ''a lot of companies don't know much about art and back away from insuring it."