Is Cryptocurrency covered by Insurance? It Depends, Is Cryptocurrency “Money” or “Property”?

It is estimated that approximately 8% of Americans own some form of cryptocurrency.1 Although cryptocurrency first appeared in 2008, it is still in its early stages. In fact, what is meant by a cryptocurrency is still evolving. It was not until March of this year that Merriam-Webster Dictionary first codified a definition of cryptocurrency, which it defined as:

Any form of currency that only exists digitally, that usually has no central issuing or regulating authority but instead uses a decentralized system to record transactions and manage the issuance of new units, and that relies on cryptography to prevent counterfeiting and fraudulent transactions.2

Given the global interest in cryptocurrency and, unfortunately, the hacking of digital wallets, it was only a matter of time before an policyholder sought coverage under a property insurance policy. That is exactly what happened in Kimmelman v. Wayne Insurance Group.3

The insured informed his insurance carrier that his BitCoin portfolio, amounting to approximately $16,000, was stolen and sought coverage. The policy was a “Homeowners 3 – Special Form,” which provided:

C. Coverage C – Personal Property

1. Covered Property
We cover personal property owned or used by an “insured” while it is anywhere in the world.

* * *

3. Special Limits of Liability
The special limit for each category shown below is the total limit for each loss of all property in that category. These special limits do no increase the Coverage C limit of liability.

a. $200 on money, bank notes, bullion, gold other than goldware, silver other than silverware, platinium other than platinumware, coins, medals, scrip, stored value cards and smart cards.

The carrier investigated the claim, confirmed coverage, concluded that the stolen BitCoin was money, and subject to the $200 sublimit within the policy.

Litigation followed and an Ohio state court was presented with a motion for judgment on the pleadings, where the carrier specifically asserted that Bitcoin was recognized as money and would be subject to the $200 sublimit set forth in the policy for stolen money. The court determined that the virtual currency was not money, but was instead property. The court explained:

Accordingly, the only authority the Court can rely on in determining the status of BitCoin is the Internal Revenue Service Notice 2014-21. Under Notice 2014-21, the IRS states, ‘For federal tax purposes, virtual currency is treated as property.’ Accordingly, the Court finds BitCoin, although termed ‘virtual currency,’ is recognized as property by the IRS and shall be recognized as such by this Court.

The authority that the court relied on, IRS Notice 2014-21, describes how existing general tax principles apply to transactions using virtual currency.4

Does this mean that cryptocurrency is always covered? Like all things in this realm, it depends largely on the policy language. In some policies, especially those employee theft and forgery policies written after 2015, there are provisions, endorsements, and/or exclusions that specifically address “virtual currency,” so each policy would have to be considered on a case-by-case basis.5 Time will tell if the Kimmelman decision is appealed and affirmed or overturned. But given the continued interest in cryptocurrencies, the judicial system will likely have to weigh in more on these issues.6
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1 https://www.finder.com/heres-why-americans-arent-buying-cryptocurrencies-survey; https://www.finder.com/ing-survey-demand-for-crypto-will-double
2 https://www.merriam-webster.com/dictionary/cryptocurrency
3 Kimmelman v. Wayne Ins. Group, 18-CV-1041 (Court of Common Pleas, Franklin County, Ohio Sept. 25, 2018).
4 Full text available at https://www.irs.gov/pub/irs-drop/n-14-21.pdf
5 Generally, a virtual currency exclusion prevents coverage for loss that involves any type of virtual currency, “including, but not limited to, digital currency, crypto currency or any other type of electronic currency.” However, two endorsements (ISO Commercial Crime Endorsements (CR 25 45 and CR 25 46)) are available to add coverage for organizations that accept virtual currency as a method of payment.
6 The field is certainly evolving. Compare U.S. v. Murgio, 209 F.Supp.3d 698, 707–10 (S.D.N.Y., 2016) (finding that bitcoins are “funds” (not “money”) under 18 U.S.C. § 1960 (which prohibits unlicensed money transmitting businesses) and U.S. v. Ulbricht, No. 14-CR-68 KBF, 2014 WL 3362059 (S.D.N.Y. 2014) (concluding that Bitcoin is money within the context of the federal anti-money laundering statute).

Idaho Denied or Delayed Property Damage Claims

During the recent Summer 2018 RMAPIA Conference, Larry Bache and I had an opportunity to discuss regulations and remedies available to first party policyholders within the RMAPIA states. Continuing that discussion, this post will review the legal remedies available to Idaho policyholders enduring the frustration of a delayed or denied insurance claim. Fortunately, Idaho provides several remedies to assist policyholders in their efforts to recover insurance benefits due and owing under an insurance policy. Continue Reading

Are Insurance Scores and Credit Scores the Same Thing?

The short answer to the question is “No, not exactly.” Credit scoring is specifically related to the loan of money and paying bills. The objective in credit scoring is to discern the likelihood of an individual paying off borrowed funds on time and over a period of time. To determine the “creditworthiness” of an individual prior to making a loan, lenders will apply several money-borrowing factors such as the individual’s total amount of debt, type of credit utilized, length of credit history and payment history. Continue Reading

It’s Rain, Not Flood, Why Isn’t My Water Damage Covered?

The photos from Hurricane Michael show catastrophic loss from not only the storm surge, up to fourteen feet in some areas, but from winds and rain as well. For those that live far enough inland where surge and flood was not an issue, but still sustained water damage from rain, you may think your homeowners policy will cover you. There is however an exclusion in most policies, commonly called the “wind driven rain exclusion” that insurers will use to disclaim coverage. Continue Reading

Are Property Insurance Appraisers Regulated? – A Reminder of Recently Enacted HB 911 for Those Heading to Florida to Assist with Hurricane Michael

Rep. Sean Shaw

Rep. Sean Shaw

House Bill 911, effective January 1, 2018, was filed by Representative Sean Shaw and enacted by the Florida Legislature to amend Fla. Stat. § 626.854, which protects policyholders through the regulation of public adjusters. Chip Merlin discussed this new law in detail in his post on July 2, 2017. In requiring public adjusters to be licensed by the State of Florida and defining the scope of their services, the Florida Legislature also excluded the growing practice of unlicensed public adjusting and the unauthorized practice of law. By defining what a licensed public adjuster can do for policyholders, the amended law notifies contractors, vendors, accountants, and others known after a catastrophe to unlawfully solicit business to act in the scope of a public adjuster. One service to policyholders that was recently questioned was whether an appraiser is required to be licensed in Florida. In the answer to this question, many others will find the answer to other services related to public adjusters, which do require a license. Continue Reading

Claim Handling Requirements by State – Alaska

Hurricane Season will soon come to its end and our attention will shift to other potential risks from nature. For many policyholders in our northern states, heavy snowstorms could be the next threat. That’s why I dedicate this blog to Alaska, known for its heavy snows or blizzards, and for earthquakes, tsunamis, forest fires, avalanches, flooding, volcanic eruptions, and landslides. These are some of the reasons why Alaska homeowner insurance policies should at least include coverage for damages done to their dwelling by fire, earthquakes and frozen pipes. Continue Reading

Rene Sigman is a Rebel with a Cause—Stopping Laws and Regulations That Harm Policyholders

Attorney Rene Sigman speaking at the TAPIA 2018 Fall Conference

Attorney Rene Sigman speaking at the TAPIA 2018 Fall Conference

Last week at the Texas Association of Public Insurance Adjuster (TAPIA) Fall Conference, Rene Sigman made the most dramatic speech ever at a public adjuster conference—and did it twice in one day. She stood up to a Texas politician railing about his constituents being harmed by bad laws and bad faith insurance companies. She called him out for voting against policyholders. Continue Reading

What Constitutes a Dwelling or Building Under Construction or Renovation For Purposes of a Vacancy Exclusion?

The typical vacancy provision in a homeowners property insurance policy is patterned after the Insurance Services Office (ISO) Homeowners 3-Special Form (HO-3 form)1 and excludes coverage for damage caused by vandalism if the dwelling has been vacant for more than 60 consecutive days before the damage occurs.2 Continue Reading

Collecting For Immediate Remediation Costs

Insurance policies ordinarily contain terms that provide that an insured must exhibit the damaged property for the insurance company’s inspection after a loss. The same policies also provide that an insured has a duty to mitigate damages to the property to prevent further damages. Does an insured breach the insurance policy by preventing the insurance company from assessing the full extent of damages if remediation work is performed at the property prior to the insurance company’s inspection? Continue Reading

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