Blockchain Legal Resource

In a seven-part series delving into issues relating to insurance coverage for digital assets, we provide a comprehensive understanding of the types of loss that can be sustained, who can sustain them, the availability of coverage under traditional insurance policies, and the emergence of new insurance products.

From IRS rulings that “virtual currency” is taxed as “property” to an SEC lawsuit claiming that digital assets are “securities” under federal law, meteoric growth of the largely unregulated crypto industry has raised numerous questions about whether crypto-related risks are covered by insurance. In the latest example of the intersection of crypto and insurance, a California federal court recently held that cryptocurrency stolen from a Coinbase account did not constitute a covered loss under a homeowner’s insurance policy. The fundamental issue was whether the stolen crypto met the policy’s requirement for “direct physical loss to property” and, more specifically, whether the losses were “physical” in nature. The court ruled against coverage, reasoning that lost control of cryptocurrency is not a direct physical loss as a matter of California law.

As reported on the Hunton Insurance Recovery Blog, in what appears to be a case of first impression, an Ohio trial court ruled in Kimmelman v. Wayne Insurance Group that the crypto-currency, Bitcoin, constitutes personal property in the context of a first-party homeowners’ insurance policy and, therefore, its theft would not be subject to the policy’s $200 sublimit for loss of “money.”

A new report from the New York Attorney General (“NYAG”) summarizes the findings of its recent Virtual Markets Integrity Initiative (the “Initiative”). The NYAG concluded that crypto trading platforms vary significantly in their risk management strategies and in the ways they fulfill customer responsibilities. The NYAG also identified three broad areas of concern: (1) potential conflicts of interest, (2) lack of serious efforts to impede abusive trading activity, and (3) limited protections for customer funds.

Blockchain, or distributed ledger technology (“DLT”), is already proving to be a game-changer for businesses globally and across sectors. But is it secure? And can insurance help protect against risks and, thus, help advance the development of this technology?

On August 28, 2018, as reported in Business Insurance, Lloyd’s of London underwriters have agreed to insure digital currency storage company, Kingdom Trust Co., against theft and destruction of cryptocurrency assets. The cover comes after almost a decade-long search by Kingdom Trust for insurance to cover its cryptoassets. According to Business Insurance, Kingdom Trust sees the availability of insurance as a key factor in bringing institutional investors into the marketplace by dispelling concerns about lack of traditional safeguards in the emerging cryptoasset space.