Boardroom Cryptonite: Assessing Coverage for Crypto-related Exposures

• Publication year: 2024
• Citation: Vol. 7 No. 2

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Michael S. Levine, Geoffrey B. Fehling, Lorelie S. Masters, and Yaniel Abreu ^*

In this article, the authors address potential insurance coverage for crypto losses under various types of insurance policies and how to deal with insurers that reject crypto claims, as well as precautionary steps that companies and their executives can take to preempt, or alternatively to address, a denial of coverage.

The collapse of cryptocurrencies and some exchanges and the recent Securities and Exchange Commission (SEC) actions against Coinbase and others have made companies and their directors and officers consider the scope of their protection under insurance policies. Given the variety and volume of new crypto-related exposures, one question has been whether traditional property and casualty policies include coverage for crypto losses under insurance policies that arguably do not have explicit coverage for such losses.

This article addresses potential insurance coverage for crypto losses under various types of insurance policies and how to deal with insurers that reject crypto claims, as well as precautionary steps that companies and their executives can take to preempt, or alternatively to address, a denial of coverage.

Insurance Coverage for Crypto Losses

Companies may find potential coverage for their crypto-related losses under various lines of insurance, including under their directors and officers (D&O), errors and omissions (E&O), cyber, crime, and property policies. So far, companies and their executives have focused mainly on the potential for such coverage under D&O policies—especially when wrongdoing by management is alleged or a regulatory investigation is underway. D&O protects companies and their decision-makers when they are accused of

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wrongdoing, as we have seen as a result of the recent collapses of crypto exchanges and adverse effects on companies with significant crypto-related exposure.

Exposures Are on the Rise, Even for Crypto-Adjacent Companies and Industries

The recent failures of companies in the crypto space and the sharp decline in the prices of cryptocurrencies have caused many companies to consider how to protect themselves in the volatile world of crypto. Several well-known crypto companies such as Genesis, Voyager Digital, Celsius, and BlockFi have reportedly filed for bankruptcy protection, reorganized, or gone out of business. While it is difficult to ascertain an exact number, losses are estimated to be substantial. Thus, companies and their executives have looked for ways to recoup crypto losses and hedge against similar risks and events in the future.

Basics of Private and Public D&O Coverage

D&O policies have, so far, been the central focus of potential coverage for crypto losses. Both private and public companies buy D&O coverage. D&O policies generally cover claims alleging wrongful acts against the company or its executives. The claims against the executives...