February 9, 1978

78-8 MEMORANDUM FOR THE GENERAL

COUNSEL, NATIONAL ENDOWMENT FOR

THE HUMANITIES

Arts and Artifacts Indemnity Act (20 U.S.C.

§ 972)— Statutory Limits—Dresden Exhibit

This responds to your request for our opinion concerning a disputed 

interpretation of the Arts and Artifacts Indemnity Act, 20 U .S.C. §§ 971-977 

(1975 Supp.).

The Act provides for indemnification by the United States against loss or 

damage to certain works of art, artifacts, printed materials, and audio and video 

recorded materials made available for exhibit in the United States. Indemnification agreements under the Act are negotiated and entered into by the Federal 

Council on the Arts and Humanities on behalf of.the United States. 20 U.S.C. 

§ 972. Limits on the amounts of indemnity are set forth in 20 U.S.C. 

§ 974(b)-(d), which reads as follows:

(b) The aggregate of loss or damage covered by indemnity 

agreements made under this chapter shall not exceed $250,000,000 at 

any one time.

(c) No indemnity agreement for a single exhibition shall cover loss 

or damage in excess of $50,000,000.

(d) Coverage under this chapter shall only extend to loss or 

damage in excess of the first $15,000 of loss or damage resulting 

from a single exhibition.

The Council proposes to indemnify a planned East German exhibit called 

“ The Splendor of Dresden” as follows: the first $50 million of loss or damage 

to the objects in the exhibit is to be covered by indemnification; however, only 

one-third of the total value of the porcelains and one-fourth of the total value of 

the panel paintings in the exhibit are to be included. The total value of the 

porcelains and the panel paintings is well below the $50 million statutory limit. 

The Council intends that the applicants, the National Gallery of Art and others, 

supplement the indemnification agreement with commercial insurance that 

would cover:

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a. Claims for loss or damage over and above $50 million, to a 

limit of $18 million;

b. Claims for loss or damage to porcelains in excess of one-third 

of the aggregate value thereof; and

c. Claims for loss or damage to panel paintings in excess of 

one-fourth of the aggregate value thereof.

As we understand it, you believe that the Council lacks the statutory 

authority to enter into the agreement as it now stands. You state that the 

porcelains and the panel paintings, if indemnified, must be covered for their 

full values.1 In explaining the proposed agreement to illustrate your contention, 

you argue that if the porcelains had a value of $3 million and all were 

destroyed, the indemnity to be paid by the United States would be limited to $1 

million. In challenging the Council’s authority, you assert that Congress 

intended that the agreements, within the range of statutory indemnification 

limits, must cover the full value of the items indemnified. Therefore, if the 

Council should adhere to its current offer to indemnify the porcelains for only 

$1 million, it could only include porcelains valued at $1 million. The result 

would be that the applicants for indemnity would be obligated to secure 

insurance on the remaining $2 million. Premiums on such a policy would be 

substantially higher than under the Council’s proposal because the commercial 

insurance carrier would be responsible for the full value of the unindemnified 

porcelains, whereas in the Council’s proposal the insurer would only be liable 

for damages in excess of $1 million. Thus, the insurer would have a $1 million 

buffer before its liability for loss attached.

The language of the Act does not expressly deal with this problem, and as we 

understand it, you do not contend otherwise. However, an argument can be 

made that 20 U .S.C. § 974(a) (1975 Supp.) supports your position. The 

provision states that:

Upon receipt of an application meeting the requirements of 

subsections (a) and (b) of section 973 of this title, the Council shall 

review the estimated value of the items for which coverage by an 

indemnity agreement is sought. I f the Council agrees with such

estimated value, fo r the purposes o f this chapter, the Council shall,

after approval of the application as provided in subsection (c) of 

section 973 of this title, make an indemnity agreement. [Emphasis 

added.]

Arguably, based on the above language, when the Council agrees with the 

estimated value of particular items, the indemnification must be in the amount 

of that value. However, in our opinion, a fair reading of the provision indicates 

that its purpose was merely to specify the procedures required before an 

agreement could be made. The emphasized language only provides that the

'Since these two classes of items are together valued at approximately $5 million, there is no 

problem with the statutory $50 million limit per exhibition.

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Council and the applicant, among other things, must agree on the value of the 

covered items before the Council can enter into an indemnity agreement.

You find support for your view in the Act’s legislative history. The specific 

language upon which you rely appears in S. Rept. No. 94-289, 94th Cong., 1st 

sess. 4 (1975), which reads as follows:

The amount of the indemnity agreement is set by the Federal 

Council on the Arts and the Humanities after reviewing the value of 

the items as set by the owner thereof. If the Council disagrees with 

the value set by the owner, and the owner disagrees with the value set 

by the Council, no indemnity agreement shall be issued. It is 

contemplated that the Council shall make liberal use of consultants, 

both with regard to the valuation and estimation of the article to be 

covered, and with regard to the packaging, transportation, and 

exhibition of that article.

Nowhere in the legislation is there found a definition of loss. It is 

understood that a loss under the indemnity agreement covers partial 

damage to covered articles as well as loss or complete destruction.

Should a claim of loss be filed under the indemnity agreement 

where there is a complete loss— where the item has been totally 

destroyed— the total amount shall be paid.

Almost identical language was used in H. Rept. No. 94-680, 94th Cong., 1st 

sess. 8 (1975).

The Department of State and the National Gallery of Art both disagree with 

your position. They are of the opinion that the Council does have the authority 

to enter into the proposed agreement. The Department of State’s argument, 

referring to the excerpt from the committee reports, is as follows:

We note your reliance on certain language appearing in the 

Committee Reports on this legislation as a basis for a different 

conclusion. This language, we believe, just as it does not debar 

insuring, say, an 80 million dollar exhibit but limiting the amount of 

recovery to 50 million dollars, likewise does not, in our view, debar 

insuring three million dollars in value of porcelain objects but 

limiting the amount of recovery funder the indemnity agreement] to 

one million dollars. We consider that the language in the Reports is to 

be read along the lines put forward by Mr. Amory, General Counsel 

of the National Gallery of Art, namely, that if the Council agrees to 

cover the full value of objects, then of course if the objects are 

completely lost or destroyed, the total value should be paid. On the 

other hand, if the Council agrees to cover a three million dollar group 

of objects but limits itself to one million dollars in payments if the 

objects are completely lost or destroyed, the one million dollars 

would be the limit of liability. In our view Congress, by the wording 

of the Reports, did not mean to preclude this result. (January 25,

1978)

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We concur. The excerpt, as we see it, does not suggest that when the 

Government enters into an indemnification agreement it must do so for the full 

value of the covered items. Its last paragraph states that:

Should a claim o f loss be filed under the indemnity agreement

where there is a complete loss— where the item has been totally 

destroyed— the total amount shall be paid .... [Emphasis added.]

This statement assumes that full payment for any total loss would be made 

pursuant to the terms of the agreement when it so provided. It cannot be 

reasonably inferred from this that the amount of indemnification must always 

equal the value of the covered items.

The Department of State and the National Gallery, in asserting that the 

Council is empowered to enter into the proposed agreement, cite 20 U.S.C. 

§ 971(a)(2) (1975 Supp.) as authority. That section provides that the Council is 

authorized to make indemnification agreements

on such terms and conditions as the Council shall prescribe, by 

regulation, in order to achieve the purposes of this chapter and, 

consistent with such purposes, to protect the financial interest of the 

United States.

Pursuant to this provision the Council may set the terms and conditions of 

indemnification agreements. In the hearing on the Act, Senator Pell, one of its 

sponsors, stated:

As I see this legislation functioning, the Federal Government would, 

for this purpose, become an agency under the Federal Government, 

with the authority to hire personnel. I would expect that the staff itself 

would be a very small one, whose initial function would simply be to 

issue the regulations necessary for implementation of the program.

The legislation has been broadly drafted to give the agency as wide a

scope as possible within which to issue those regulations.2 [Emphasis 

added.]

It would appear that, pursuant to § 971(a)(2), the Council could, in the face 

of an unacceptable risk, refuse any indemnity coverage of certain items. Such a 

precaution would seem to be warranted in light of the Council’s statutory duty 

“ to protect the financial interest of the United States.” Since the Council may 

refuse indemnification, or indemnify for the full value of covered items, it 

follows that its evaluation of the risks of a particular situation can justify an 

intermediate position under a limited indemnification agreement. Section 

971(a)(2) provides that the Council is authorized to set such terms and 

conditions in indemnification agreements so as to achieve the purposes of the 

Act. The Council’s proposal would result in substantially lower insurance 

premiums than under your interpretation. The Senate and House Reports’

2Arts and Artifacts Indemnity Act: Joint Hearing on S. 1800 Before the Special Subcommittee on

Arts and Humanities o f the Senate Committee on Labor and Public Welfare, and the Select

Subcommittee on Education o f the House Committee on Education and Labor, 94th C ong., 1st 

sess. 36 (1975).

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primary theme is that the high cost of insurance unduly impedes the desirable 

practice of loaning and receiving artistic treasures. The Act was intended to 

meet this problem. Thus, the Council’s proposal would further the Act’s policy 

of alleviating the problems caused by high insurance rates. In addition, as the 

Department of State indicates, the Council’s approach of indemnifying in 

certain cases for less than the value of the covered items

. . . protects the 250 million dollar limitation on the obligational 

authority from depletion and permits the stretching of the 250 million 

dollar limitation to cover more foreign exhibits.

For these reasons we believe that the Council’s authority to make the 

disputed agreement is included in its broad powers under the Act.

Finally, we think it noteworthy that the proposed agreement entails no 

realistic possibility of loss to any concerned party. The lender of the covered 

items receives the same degree of protection as it would under your proposal. 

The Council and the applicants would actually benefit. The Council can 

encourage the exhibition of valuable items, while limiting the exposure of the 

United States to an amount less than the items’ full value; and, the applicants’ 

insurance costs would be reduced, thus enhancing the possibility that further 

exhibitions would result. Moreover, the public would also benefit by such a 

result.

For the foregoing reasons it is our opinion that the Council is empowered to 

enter into the proposed indemnification agreement.

Le o n U l m a n

Deputy Assistant Attorney General

Office o f Legal Counsel

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