[Federal Register Volume 60, Number 158 (Wednesday, August 16, 1995)]
[Rules and Regulations]
[Pages 42464-42466]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-20189]



=======================================================================
-----------------------------------------------------------------------

NATIONAL FOUNDATION ON THE ARTS AND THE HUMANITIES

45 CFR Part 1160

RIN 3154-AAoo


Indemnities Under the Arts and Artifacts Indemnity Act

AGENCY: Federal Council on the Arts and the Humanities.

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: The Federal Council on the Arts and Humanities is adopting as 
a final rule, without change, the provisions of a proposed rule that 
revises the regulations implementing the Arts and Artifacts Indemnity 
Act, as amended (20 U.S.C. 971-977) (the ``Act''). The final rule 
permits the indemnification of eligible items from the United States 
while on exhibition in this country in connection with an exhibition of 
eligible items from outside of the United States. The final rule also 
includes illustrations of exhibitions eligible for indemnification 
which are intended to provide further guidance to persons considering 
applying for the indemnification of an international exhibition. The 
final rule is not intended to bring about a major shift in emphasis of 
the current policy or practice of the indemnity program.

EFFECTIVE DATE: September 15, 1995.

FOR FURTHER INFORMATION CONTACT: Alice Whelihan, Indemnity 
Administrator, National Endowment for the Arts, 1100 Pennsylvania 
Avenue, N.W., Washington, D.C. 20506, 202-682-5442.

SUPPLEMENTARY INFORMATION:

I. Background

A. Statutory Background

    In 1975, the United States Congress enacted the Arts and Artifacts 
Indemnity Act which established an indemnity program administered by 
the Federal Council on the Arts and the Humanities (the ``Federal 
Council''). 20 U.S.C. Sections 971-977. The Federal Council is composed 
of the heads of nineteen federal agencies and was established by 
Congress, among other things, to coordinate the policies and operations 
of the National Endowment for the Arts, the National Endowment for the 
Humanities, and the Institute of Museum Services, including the joint 
support of activities. 20 U.S.C. Section 971.
    Under the indemnification program, the United States Government 
guarantees to pay loss or damage claims, subject to certain 
limitations, arising out of exhibitions containing items determined by 
the Federal Council to be of educational, cultural, historical or 
scientific value the exhibition of which must be certified by the 
Director of the United States Information Agency as being in the 
national interest. In order to be eligible for indemnification, the 
objects must be on exhibition in the United States, or if outside this 
country preferably as part of an exchange of exhibitions.

B. Legislative History

    On May 21, 1975, Senators Claiborne Pell (D, RI) and Jacob Javits 
(R, NY) introduced the Arts and Artifacts Indemnity Act as an amendment 
to the reauthorization of the National Foundation on the Arts and 
Humanities Act of 1965. According to the House Committee report, the 
purpose of the statute was ``to provide indemnities for exhibitions of 
artistic and humanistic endeavors, and for other purposes.'' \1\ The 
Senate Committee stated that it believed that this purpose could be 
advanced ``through the exchange of cultural activities and sharing by 
nations of the world of their cultural institutions and national wealth 
and treasure.'' \2\

    \1\ Id.
    \2\ Id.
---------------------------------------------------------------------------

    The broad purpose of the Act is echoed throughout the Act's 
language and legislative history. For example, in testifying at joint 
hearings before the House Subcommittee on Select Education and the 
Senate Special Subcommittee on Arts and Humanities, Nancy Hanks, 
Chairman, National Endowment for the Arts, stated:

    Cultural exhibitions and exchanges of high quality should be 
encouraged by the laws and policies of the United States Government. 
They are in the national interest because of the personal, 
aesthetic, intellectual, and cultural benefits accruing to every 
man, woman and child of this nation who has the opportunity to 
experience these beautiful and enlightening presentations. We 
believe that this country should do as much as any nation in the 
world to insure that these vitally important programs are 
strengthened.\3\

    \3\ H.R. Rep. No. 680, 94th Cong., 1st Sess., at 5.
---------------------------------------------------------------------------

    There was concern in Congress that such exchanges were impeded by 
prohibitively high insurance costs. The Senate noted that ``anywhere 
from half to two-thirds of the cost of an international exhibition is 
the cost of insuring the material to be exhibited.'' \4\ Ronald Berman, 
Chairman of the Federal Council, testified that without indemnification 
provided in special legislation enacted by the 93rd Congress, the 
insurance costs in connection with several widely attended exhibitions 
would have been prohibitive.\5\

    \4\ S. Rep. No. 289, 94th Cong., 1st Sess., at 1.
    \5\ H.R. Rep. No. 680, 94th Cong., 1st Sess., at 5.
---------------------------------------------------------------------------

C. Regulatory Background

    The Federal Council is the agency charged by Congress with the 
responsibility to administer the Arts and Artifacts Indemnity Act. In 
practice, the Indemnity Program is administered for the Federal Council 
by the Museum Program of the National Endowment for the Arts under the 
``Indemnities Under the Arts and Artifacts Indemnity Act'' regulations 
(the ``Regulations''), which are set forth at 45 CFR Part 1160.
    These Regulations have been promulgated, and amended from time to 
time, by the Federal Council pursuant to the express and implied 
rulemaking authorities granted by Congress to make and amend rules 
needed for the effective administration of the indemnity program. Among 
other things, Congress expressly granted the Federal Council the 
authorities to establish the terms and conditions of indemnity 
agreements; to set application procedures; and to establish claim 
adjustment procedures. 20 U.S.C. Sections 971(a)(2), 973(a), 975(a).
    For a number of years, the Federal Council has considered the 
desirability of amending the Regulations to permit the indemnification 
of U.S.-owned loans on exhibition in the United States in connection 
with certified international exhibitions. As currently drafted, the 
Regulations do not cover domestic objects on loan to an international 
exhibition in the United States. The Regulations provide, in pertinent 
part:

    An indemnity agreement made under these regulations shall cover:
    (1) Eligible items from outside the United States while on 
exhibition in the United States or
    (2) Eligible items from the United States while on exhibition 
outside this country, preferably when they are part of an exchange 
of exhibitions. 45 CFR Section 1160.1.

    On February 25, 1993, during a lengthy discussion of the 
application of the National Gallery of Art for the indemnification of 
the exhibition ``Great French Paintings from the Barnes 

[[Page 42465]]
Foundation: Impressionist, Post-Impressionist and Early Modern,'' the 
Federal Council concluded that the eligibility criteria set forth in 
the Regulations were more narrowly drawn than required under the Act. 
While the Council approved the indemnification of the Barnes 
exhibition, which consisted of one foreign-owned object and 80 
domestically owned objects, a Certificate of Indemnity ultimately did 
not issue because of legal uncertainties related to the Council's 
action under its current Regulations. To clarify eligibility issues for 
future actions, the Federal Council voted to amend its regulations.
    After extensive discussion of the issue, the Federal Council 
resolved that the proposed amendment to the Regulations would 
significantly enhance its ability to provide the American public with 
the benefits to a high quality program of international exhibitions 
while not significantly increasing the exposure of the Federal 
government to pay loss or damage claims nor significantly adding to the 
administrative burdens or costs of the program.
    The Federal Council concluded that widening the eligibility 
criteria under the Indemnity Program to include coverage of U.S.-owned 
objects in exhibitions that also include foreign-owned loans would 
provide an important benefit to U.S. cultural institutions and to the 
American public. Under the current guidelines, U.S.-owned loans may be 
indemnified only when exhibited abroad. The Federal Council concluded 
that if items from abroad are of educational, cultural, historical or 
scientific value, and their exhibition has been certified by the 
Director of the United States Information Agency as being in the 
national interest, thereby making them eligible for indemnification 
coverage, the U.S.-owned loans to the exhibition also should be 
eligible for indemnification.
    The Federal Council stressed that the amendment is not intended to 
bring about a major shift in the emphasis of the current policy or 
practice of the indemnity program. Under the amended Regulations, 
indemnity coverage will continue to be available primarily for the 
exhibition of items coming from outside the United States. In 
determining whether to indemnify international exhibitions that also 
include U.S. loans, the Federal Council will continue to apply the same 
general standard of review--whether the exhibition taken as a whole is 
of educational, cultural, historical or scientific significance. 
However, to guard against potential abuses, the Federal Council will 
require that the foreign loans be an integral or essential component of 
the exhibition. Exhibitions consisting solely of domestic items will 
continue to be ineligible for indemnification.
    The Federal Council concluded that because of the overall statutory 
cap on the program the proposed modification would not significantly 
increase the exposure of the Federal government to claims for loss or 
damage while providing important additional relief for U.S. borrowing 
institutions. Under the statutory cap, the Federal Council may not 
issue indemnity agreements covering losses of more than an aggregate of 
$3,000,000,000 at any one time. The cap--and thereby the total 
government exposure--remains the same whether the indemnity agreements 
cover foreign or domestic content. Moreover, the fact that coverage 
during international transit, the time of greatest risk, would not be 
required for loans from U.S. lending institutions greatly reduces the 
risk of additional losses.
    The Federal Council further concluded that the proposed amendment 
would not cause a significant increase in either the number of 
applications to the program or the administrative burdens associated 
with applying or reviewing indemnification applications. This is the 
case because under the current practice, applicants already are 
required to include information on domestic loans in their 
applications, and indemnity panels consider the educational, cultural, 
historical or scientific value of both the domestic and foreign items 
in determining whether to indemnify an exhibition.
    While the need to determine whether indemnification of the domestic 
content is appropriate will require an additional judgment made by the 
Federal Council, it is similar in character to the determinations 
already made by the Federal Council in determining the appropriateness 
of indemnification of foreign content. Moreover, the same options for 
technical assistance and resubmission will be available for a rejected 
applicant as are currently available.
    On June 16, 1993, on the basis of these conclusions, the Federal 
Council reaffirmed its vote of February 25, 1993 to amend the 
Regulations to permit the coverage of domestic items in connection with 
international exhibitions in the United States. Specifically, the 
Federal Council approved a motion to promulgate regulations revising 45 
CFR 1160.1 (``Purpose and Scope'') by adding the following language:

    (3) eligible items from the United States while on exhibition in 
the United States if the exhibition includes other eligible items 
from outside the United States.

    On April 6, 1994, the Federal Council published in the Federal 
Register an advance notice of proposed rulemaking (ANPR) regarding the 
indemnification of eligible items from the United States while on 
exhibition in this country in connection with an exhibition of items 
from outside the United States. 59 FR 16162-64, April 6, 1994. On July 
6, 1995, the Federal Council published in the Federal Register a notice 
of proposed rulemaking which included the Federal Council's responses 
to the comments received in response to the ANPR. 60 FR 35162-66, July 
6, 1995.

II. Discussion of Comments Received

    The Federal Council did not receive any comments in response to its 
notice of proposed rulemaking.

III. Regulatory Anlayses

    This rule is not a significant regulatory action for the purposes 
of Executive Order 12866 of September 20, 1993.
    As required by the Regulatory Flexibility Act, it is hereby 
certified that this rule will not have a significant impact on small 
business entities.
    The Catalogue of Federal Domestic Assistance number for the Arts 
and Artifacts Indemnity Program is 45-201.

    For the Federal Council on the Arts and the Humanities.
Michael S. Shapiro,
Counsel to the Federal Council on the Arts and the Humanities.

    For the reasons set forth in the preamble, 45 CFR Part 1160 is 
amended as follows:

PART 1160--INDEMNITIES UNDER THE ARTS AND ARTIFACTS INDEMNITY ACT

    1. The authority citation for part 1160 continues to read as 
follows:

    Authority: 20 U.S.C. 971-977.

    2. Section 1160.1 is amended by revising paragraph (a) as follows:


Sec. 1160.1  Purpose and scope.

    (a) This part sets forth the exhibition indemnity procedures of the 
Federal Council on the Arts and Humanities under the Arts and Artifacts 
Indemnity Act (Pub. L. 94-158) as required by section 2(a)(2) of the 
Act.
* * * * *
    3. Sections 1160.4 through 1160.11 are redesignated as Secs. 1160.5 
through 

[[Page 42466]]
1160.12 and a new Section 1160.4 is added to read as follows:


Sec. 1160.4  Eligibility.

    An indemnity agreement made under these regulations shall cover:
    (a) Eligible items from outside the United States while on 
exhibition in the United States;
    (b) Eligible items from the United States while on exhibition 
outside this country, preferably when they are part of an exchange of 
exhibitions; and
    (c) Eligible items from the United States while on exhibition in 
the United States, in connection with other eligible items from outside 
the United States which are integral to the exhibition as a whole.

Example 1

    Museum A, an American art museum, is organizing a retrospective 
exhibition which will include more than 150 works of art by the 
Impressionist painter Auguste Renoir. The exhibition will present 
the full range of Renoir's production for the first time ever in an 
American museum. Museums B and C, large national museums in Paris 
and London, have agreed to lend 125 major works of art illustrating 
every aspect of Renoir's career. Museum A is also planning to 
include related works from other American public and private 
collections which have not been seen together since the artist's 
death in 1919. Museums D and E, major east coast American art 
museums, have agreed to lend 25 masterworks by Renoir. The 
exhibition will open in Chicago and travel to San Francisco and 
Washington.

Discussion

    Example 1 is a straightforward application of the amended 
indemnity regulations. Under the old regulations, only the works of 
art from Museums B and C, the foreign museums, would have been 
eligible for indemnification. Under the proposed Regulations, the 
works of art from American museums and other public and private 
collections also would be eligible for indemnification. In 
determining whether to indemnify the entire exhibition, the Federal 
Council will evaluate the exhibibition as a whole and whether the 
foreign loans are integral to the educational, cultural, historical 
or scientific significance of the exhibition. In this example, the 
Federal Council would likely approve indemnification of the entire 
exhibit.

Example 2

    Museum A in Massachusetts is organizing an exhibition 
celebrating 250 Years of Decorative Arts in America, to be held in 
conjunction with the state's celebration of the millennium. Included 
among the objects to be borrowed from museums and historical 
societies in the United States are furniture, textiles, metalwork, 
ceramics, glass and jewelry, illustrating the best examples of 
American design from colonial times to the present. The curator 
traveled abroad recently and saw an exhibition of American quilts 
which have been acquired by a British decorative arts museums. He 
intends to borrow several of the quilts for the exhibition.

Discussion

    Example 2 raises the question as to whether the American museum 
organizing the exhibition has included the British-owned American 
quilts merely to obtain insurance relief. In determining whether to 
indemnify the entire exhibition, the Federal Council will evaluate 
the exhibition as a whole and whether the foreign loans are integral 
to achieving its educational, cultural and historical purposes. 
Here, it is likely that the Federal Council will conclude that the 
foreign work are not an essential component of the exhibition. The 
Federal Council also may seek additional information from the 
applicant to determine whether the objectives of the exhibition 
could have been accomplished as satisfactorily by borrowing American 
quilts from U.S. collections. On these facts, the Federal Council in 
all likelihood would deny indemnification for the entire exhibition.

Example 3

    Museum A, an American museum, is organizing an exhibition of the 
works of James Watkins, a nineteenth century American painter, 
focusing on his studies of human anatomy. Museum A has the foremost 
collection of preparatory drawings related to Watkins' major 
painting, ``The Surgeon and His Students.'' The painting is in the 
permanent collection of Museum B, located in the south of France, 
which has agreed to lend the painting for the exhibition. The 
exhibition will be shown at Museum B after the U.S. tour. American 
Universities, C and D, have also agreed to lend anatomical 
illustrations and drawings which show Watkins' development as a 
draughtsman. The exhibition and accompanying catalogue are expected 
to shed new light on Watkins contributions to art and scientific 
history.

Discussion

    Example 3 addresses the issue of whether the Federal Council 
will indemnify an exhibition even where the U.S. objects outnumber 
the foreign works. In determining whether to indemnify the entire 
exhibition, the Federal Council will evaluate the exhibition as a 
whole and the relationship of the foreign loans to the educational, 
cultural, historical and scientific significance of the exhibition. 
In this example, the exhibition promises to make important 
contributions not only to the history of art but also to the history 
of science. While there is only a single foreign work of art, it is 
clearly an essential component of the exhibition as a whole. The 
case for indemnification of the entire exhibition is further 
strengthened by the fact that a foreign masterpiece, which is 
closely related to the preparatory drawings and anatomical 
illustrations and drawings owned by American institutions, will be 
made available to the American public. Thus, the mere fact that the 
U.S. loans outnumber the foreign works will not in itself disqualify 
the entire exhibition for indemnification.

[FR Doc. 95-20189 Filed 8-15-95; 8:45 am]
BILLING CODE 7536-01-M