## Facts

- Henry F. and Anne Marie Frigon owned a collection of American Impressionist paintings insured under an all-risk fine-art policy issued by Pacific Indemnity.
- The Frigons bought 11 paintings from a Chicago gallery for more than $1 million and later consigned the paintings back to the gallery for resale under oral and written consignment agreements.
- The written agreements set minimum “consignment prices” and permitted sale at or above those prices.
- The gallery, unbeknownst to the Frigons, was in serious financial distress.
- By the end of 2002, the gallery sold all 11 paintings to bona fide purchasers, often for less than the agreed minimum prices, and kept the proceeds without notifying the Frigons.
- In early 2003, the gallery gave partial payment information for one painting; payments stopped, and the Frigons demanded return of the paintings.
- Around March–April 2003, the gallery admitted the paintings had been sold and the proceeds spent; the Frigons could recover neither the paintings nor the proceeds.
- In May 2003, the Frigons submitted an insurance claim asserting the paintings were lost or converted; Pacific denied coverage.
- The Frigons sued for declaratory and contract relief; the parties filed cross-motions for summary judgment.

## Issues

1. Whether the dealer’s unauthorized sale of consigned paintings and retention of proceeds constituted a covered “loss” under an all-risk policy insuring against physical loss or loss of the paintings.
2. Whether conversion (and thus the covered loss) occurred within the policy period when the unauthorized sales predated the demand for return.
3. Whether coverage was barred because the loss was the foreseeable consequence of the insureds’ intentional act of consigning the paintings (intentional-act/foreseeability exclusion).

## Decision

- The court granted the Frigons’ motion for partial summary judgment on coverage and denied Pacific’s cross-motion.
- The court held the Frigons sustained a covered loss because the gallery’s conduct constituted conversion of the paintings, permanently depriving the owners of the insured property.
- The court held conversion occurred when the Frigons demanded return and the gallery refused or failed to return the paintings, placing the loss within the policy period.
- The court held the intentional-act/foreseeability exclusion did not apply because the insureds did not intend, expect, or foresee the dealer’s concealed wrongdoing merely by consigning the paintings.
- The court denied Pacific’s motion for reconsideration, finding no manifest error of law or fact.

## Legal Principles

- An all-risk property policy generally covers fortuitous losses to insured property unless an exclusion applies.
- Under Illinois conversion law for entrusted property, conversion may occur upon the owner’s demand for return and the possessor’s refusal or failure to return, even if an earlier unauthorized transfer occurred.
- Insurance coverage for loss of insured property is not avoided merely because the insured voluntarily entrusted the property to a third party for a legitimate purpose.
- An intentional-act/intentional-loss exclusion targets losses intended or expected by the insured; it does not bar coverage for an insured’s routine, lawful act that is followed by a third party’s undisclosed conversion.

## Conclusion

The court ruled that the insureds’ all-risk fine-art policy covered the loss of consigned paintings converted by a gallery, that the conversion occurred within the policy period when the owners demanded return and the gallery failed to comply, and that the intentional-act/foreseeability exclusion did not defeat coverage.


Frigon v. Pac. Indem. Co., No. 05 C 6214, 2007 WL 756384 (N.D. Ill. Jan. 16, 2007)