Your art work AT AN AUCTION HOUSE is suddenly lost, or destroyed, or carried off in the middle of the night, while in the possession of the Auction House. It is insured in writing for $100,000. Since it is ruled a total loss your independent insurance company will then pay you $100,000 for your loss.
But let’s say your insurance contract was purchased on your behalf by Sotheby’s.
Surprise! Sotheby’s contract probably reads something like this. “In the event of a total loss (Property which has been damaged and has depreciated in value, in the insurer’s opinion, by more that 50%), the insurer will pay you the foregoing amount, less in any case the selling commission and expenses payable to you under this Agreement, and the Property will belong to the insurer.
That means instead of getting the full $100,000, the Auction House first subtracts $10,000 (if their commission is 10%); $1,500 for your insurance if the rate was typically 1.5%; possibly subtracts for a service fee or two; possibly another fee for the photograph included in the catalog… and so on… In any case the most you can probably expect to get of the $100,000 is $88,500.