## Facts

- A fine arts insurer issued a policy covering a gallery’s fine art inventory as the insured’s “property.”
- The gallery owned a Fernando Botero painting, *Tablao Flamenco*.
- The gallery delivered the Botero to an art dealer and longtime customer’s warehouse in September 2000 under a transaction initially priced at $785,000.
- The buyer did not pay; the parties restructured the deal so the gallery would forgive the $785,000 amount and pay an additional $885,000 in exchange for two Marc Chagall paintings (*La Visite* and *Scene Biblique*).
- The gallery wired the additional $885,000 and viewed the Chagalls at the buyer’s apartment, but did not take possession because the buyer dissuaded him.
- The buyer later disappeared and was indicted for fraud involving the Chagall works.
- The gallery sought coverage for the Botero, asserting the buyer’s fraud meant the gallery retained title under New York U.C.C. principles.
- In a separate forfeiture proceeding over *La Visite*, the gallery asserted it had purchased *La Visite* and that consideration included forgiving the buyer’s $785,000 “debt” for the Botero.
- The insurer denied coverage, asserting the Botero was no longer the insured’s “property” after delivery in a sale/exchange transaction.

## Issues

1. Whether the gallery was judicially estopped from denying it sold the Botero because of its position in the prior forfeiture proceeding.
2. Whether, under New York law and the policy’s “property of the insured” language, the gallery retained an insurable property interest in the Botero after voluntarily delivering it to a buyer who allegedly obtained it by fraud.

## Decision

- The Second Circuit affirmed summary judgment for the insurer.
- The court rejected judicial estoppel as a necessary basis for affirmance because the record did not clearly show the prior tribunal adopted the gallery’s earlier position.
- On the merits, the court held there was no coverage because, after voluntary delivery in a commercial transaction, the buyer obtained at least voidable title under New York U.C.C. § 2-403.
- Because the buyer had the power to transfer good title to a good-faith purchaser, the Botero was not the insured’s “property” within the policy at the time of the loss, even if the buyer’s conduct was fraudulent.

## Legal Principles

- Judicial estoppel in the Second Circuit requires (1) an inconsistent position in a prior proceeding and (2) adoption of that position by the prior tribunal; inconsistency alone is insufficient.
- Under New York U.C.C. § 2-403, when an owner voluntarily delivers goods in a transaction of purchase, a fraudulent transferee generally acquires voidable (not void) title and can pass good title to a good-faith purchaser for value.
- For “property of the insured” coverage in a fine arts policy, voluntary transfer of possession in a sale/exchange that confers voidable title can eliminate the insured’s covered ownership interest; the insured’s remaining claims sound in rescission or fraud remedies against the transferee rather than a covered property loss.

## Conclusion

The Second Circuit held the insurer owed no coverage for the Botero because the gallery voluntarily delivered the painting in a commercial transaction, giving the buyer voidable title under New York law; the painting therefore was not the insured’s covered “property” at the time of the claimed loss, regardless of alleged fraud.


Zurich Am. Ins. Co. v. Grimberg Fine Art, 324 F. App’x 117 (2d Cir. 2009)