Consignment agreements are contracts between a gallery and an art owner that allow the gallery to display and/or sell the artwork. Like a loan agreement, a consignment agreement does not transfer ownership rights to the gallery and specifies that ownership transfers from the artist directly to the purchaser upon payment in full. These agreements typically include information about the parties, the term of the agreement, location of the exhibit, agreed upon price and percentage of that price to be paid to the gallery in the event of a sale, plans for the return of unsold works, applicable law, and which party — gallery or artist or collector — will cover insurance costs. You may also have your insurance company issue a certificate naming you as the loss payee so that you can be compensated in case of damage, destruction or loss.

While consignment agreements offer some protection, they do not prevent certain creditors from seizing artworks in a gallery’s possession if the gallery files for bankruptcy. However, many jurisdictions, including New York, California and Washington, DC (where fine art insurance was “invented”), have statutes that protect works of art by a living artist from creditors and create a fiduciary relationship between the gallery and an artist similar to that of a trust. However, the effectiveness of the statutory protections may depend on meeting certain requirements, such as having a prior consignment agreement. Artists in states without protective legislation and art collectors who want to consign their work can file a UCC-1 form prior to delivery of the consigned work to help protect the work from being seized by the gallery’s creditors. A UCC-1 form is filed with the Secretary of State where the consignee is located and gives public notice that the filer has priority ownership over creditors. The form includes the parties, a description of the work, and filing fees. Similarly, in Washington, DC, an art collector or an artist’s estate should file a UCC-1 form to protect works of art from being seized in the event of a gallery’s bankruptcy.