What does it mean when an insurance company says that a damaged work of art no longer exists

In the December 24 &31, 2012 issue of The New Yorker, Rebecca Mead wrote a Talk of the Town piece, “Zombie Art” about The Salvage Art Institute’s exhibit in the Arthur Ross Architecture Gallery at Columbia University called “No Longer Art” and a related symposium (http://www.youtube.com/watch?v=_lX9vW47sKs ) bringing considerable exposure to the category of “dead” or “salvage” art— i.e., damaged works of art for which the cost of conservation would be greater than the amount for which the works are insured. These works are therefore rendered as total losses by insurance companies and are sent to warehouses to live in limbo. In terms of the art market they no longer exist. However, they do exist physically and could be restored, raising existential ethical questions which conservators might well contemplate.