Bitcoin Insurance May Be Covered by Homeowner Policy
Although insurance for smart contracts may seem a ways away, there are methods that bitcoin holders can use to protect their investment. For example, one Ohio man is claiming that $16,000 of stolen bitcoin should be covered by his homeowner’s policy. If it is covered by his insurance policy, then it may be all the more reason for the IRS to recognize bitcoin as “property.” The claim is certainly novel and an Ohio court is allowing it to proceed.
The Ohio man, James Kimmelman, reported the theft to Wayne Mutual Insurance Group, stating that $16,000 had been stolen from his digital wallet. The insurance company investigated the claim and remunerated Kimmelman only $200, the sublimit for “money” under the insurance policy.
Kimmelman responded by filing a lawsuit against his insurer for bad faith and breach of contract. The process prompted a lengthy discussion concerning whether cryptocurrency is considered money. The bank’s lawyers justified the bank’s position by citing articles from CNN, CNET, and the New York Times, which referred to bitcoin as “money,” rather than property. They also cited the IRS’s use of the term “virtual currency.”
Kimmelman replied by citing several arguments from federal and Florida state courts. The court determined that,
“None of theses cases are governing or persuasive in the underlying matter.” “The Florida state cases were based on unpublished opinions and federal cases relied on a statute only pertaining to United States currency, which BitCoin is not.”
However, IRA Notice 2014-21 provided some guidance for the case. The document, a six-page FAQ released by the IRS discussed that “for federal tax purposes, virtual currency is treated as property.” The court ultimately ruled that:
“BitCoin, although termed “virtual currency” is recognized as property by the IRS and shall be recognized as such by this Court. Based on the foregoing analysis, the Court finds Plaintiff has property plead in his Complaint for breach of contract and bad faith. Defendant’s motion for judgment on the pleadings is denied.”
Keep in mind that this is only the complaint stage. Kimmelman will need to persuade the Court that bitcoin is indeed “property” under the homeowner’s policy and that his insurance company acted in bad faith. Further, in addition to arguing that bitcoin is not money, Kimmelman will need to escape the $500 sub-limits for “electronic funds” and a $1,500 limit for “securities.”
The further development of blockchain technology may continue to enmesh people in their daily life. In the future, it could be possible for companies to instill safeguards in their contracts to clarify the status of bitcoin and other virtual currencies.