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).