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Bitcoin Insurance The Next Step, Are You Covered?


Smart contract insurance is still a long way off, but one Bitcoin hodler is protecting his gains the old-fashioned way.  An Ohio man is attempting to claim $16,000 of stolen Bitcoin under his Homeowner’s Policy. He is justifying the claim under the IRS’ definition of virtual currency as “property”. Although the claim might sound far fetched, an Ohio judge is allowing the case to proceed. 

In August of 2017, Plaintiff James Kimmelman reported the theft of $16,000 in “BitCoin” from his digital wallet to Wayne Mutual Insurance Group, according to the judgement. After investigating the claim, Wayne Mutual remunerated Kimmelman for only $200 the sublimit for ‘money’ under Kimmelman’s home insurance policy.

Justifying their position, Wayne lawyers cited “articles from CNN, and New York Times” which referred to Bitcoin as “money”. Anyway the Internal Revenue Service’s use of the term “virtual currency.”

How Kimmelman Is Using Law

Kimmelman responded with several legal arguments from Federal and Florida courts, although none of them managed to stick. “[N]one of these cases are governing or persuasive in the underlying matter,”wrote Judge Charles Schneider, noting that the Florida case was based on an unpublished opinion and that the argument from the Federal court relied on “a statute only pertaining to United States currency, which BitCoin is not.”

Ultimately, there was only one government resource which provided any sort of guidance for the case: IRS Notice 2014-21, the six-page FAQ which states that “For federal tax purposes, virtual currency is treated as property.” Given that the only legal guidance supported Kimmelman’s claim to lost “property,” Judge Schneider ruled that:

The Court finds Plaintiff has properly plead his Complaint for breach of contract and bad faith. Defendant’s motion for judgment on the pleadings is DENIED.

However, this courtroom drama is only beginning. Kimmelman will not only have to persuade courts that Bitcoin is “property” under his homeowner’s policy, also that his insurance company behaved unfairly. “Given that this appears to be an issue of first impression in Ohio”. Wrote one reviewer on JD Supra“on summary judgment review, the insurer should have valid arguments that it committed no bad faith.” 

Moreover, Kimmelman will also have to escape $500 sublimits for “electronic funds” and a $1,500 limit for “securities.”

Blockchain technologies continue to develop and enmesh themselves in daily life. However defining and categorizing cryptocurrencies is likely to become a high priority for insurers. Especially giving the precedent set by the Kimmelman ruling.

In the future it may be possible to develop enough safeguards to reliably cover Bitcoin without fraud. Until then, you might expect a new line of fine print in your next insurance policy: “Cryptocurrencies not included.”

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