Policyholders Should Not Overlook Traditional Policies In Evaluating Coverage For Cryptocurrency-Related Risks

• Published date: 22 April 2022
• Subject Matter: Technology, Fin Tech
• Law Firm: Jones Day
• Author: Mr Mark Andreini, Dorothy Giobbe, Tara C. Kowalski, Jason B. Lissy, Mark W. Rasmussen and Amanda P. Ellison

In Short

The Situation: Companies using or investing in cryptocurrencies face various risks, including digital theft, ransomware attacks, and market volatility. The availability of insurance coverage for these risks is evolving rapidly.

The Result: In addition to evaluating new forms of coverage that may be available for these risks, policyholders facing cryptocurrency-related losses should also review their traditional insurance policies carefully for potential protection against such losses.

Looking Ahead: As with many emerging losses, the insurance industry has already begun trying to develop and add language to traditional policies attempting to limit or modify the scope of coverage for cryptocurrency-related risks while simultaneously marketing new forms of specialty coverage tailored to cryptocurrency risks. Policyholders should be mindful of any such language when purchasing traditional forms of insurance and consider whether additional specialized coverage should be purchased.

Introduction

Cryptocurrency, such as Bitcoin, is a decentralized and exclusively virtual currency that is secured through cryptography. Companies using or investing in cryptocurrency face various risks, such as market volatility, ransomware attacks, and digital theft. Losses resulting from such risks may be covered by existing insurance policies, such as property insurance, cyber insurance, and/or directors and officers ("D&O") insurance policies. For example, property insurance may cover monetary losses if cryptocurrency is stolen; cyber insurance may cover ransom payments to hackers targeting cryptocurrency; and D&O insurance may cover legal costs in connection with claims against directors or officers for their decisions and actions in connection with cryptocurrency use and/or investments. Because cryptocurrency is relatively novel, courts and government agencies have not yet reached a consensus as to how to categorize it. For example, some courts and/or agencies have categorized cryptocurrency as property, while others have characterized it as funds or money. And, whether cryptocurrency constitutes a security is currently being litigated in Securities and Exchange Commission v. Ripple Labs Inc., Case No. 20-cv-10832 (S.D.N.Y. 2020). Policyholders facing cryptocurrency-related losses should carefully evaluate these varying and evolving characterizations of cryptocurrency and analyze potential coverage under their existing insurance policies.

Property Insurance

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