The insurability of cryptocurrency under household insurance policies has been a contentious issue, marked by uncertainty and a lack of clarity in legal precedent. Few courts have addressed whether digital currencies such as Bitcoin or Ethereum can be classified as insurable property under such policies. With the introduction of the Property (Digital Assets) Bill 2024, there is now potential for significant legal developments in this area. However, while the bill represents a step forward, it stops short of categorically defining digital currencies as insurable property. Instead, it sets the stage for future litigation that could significantly impact the way insurers approach coverage for digital assets.
The Property (Digital Assets) Bill 2024, which had its first reading in the House of Lords on 11 September 2024, aims to provide statutory clarification on the status of digital assets as objects of personal property rights. The bill, which awaits its second reading, was introduced to give effect to the recommendations made by the Law Commission in its report dated 30 July 2024. It establishes that a digital or electronic thing will not be excluded from being recognised as personal property merely because it isn’t a physical thing.
Clause 1 of the bill states:
“A thing (including a thing that is digital or electronic in nature) is not prevented from being the object of personal property rights merely because it is neither – (a) a thing in possession, nor (b) a thing in action.”
The explanatory notes to the bill make it clear that while digital assets, such as crypto-tokens, are likely to be the main focus of the bill’s application, the legislation deliberately refrains from providing a definitive classification. Instead, it leaves the categorisation and implications of such recognition to be determined by common law. This approach aims to provide a flexible framework that can adapt to the evolving nature of digital assets without prematurely constraining them within traditional legal categories.
The bill’s impact on the insurability of cryptocurrency is nuanced. It does not expressly state that digital currencies are insurable property under household policies, nor does it set a precedent that they might be covered. However, confirming that digital assets can potentially be the subject of property rights opens the door for future legal challenges that could see some cryptocurrencies classified as insurable property under the standard wording of household insurance policies.
For insurers, this represents a double-edged sword. On the one hand, the recognition of cryptocurrencies as personal property could expose insurers to significant risks. With some homeowners holding substantial amounts of cryptocurrency, the potential liability for theft or loss of these digital assets under a household insurance policy could be considerable. Insurers would need to review their wordings and decide whether they want to cover this type of risk and, if so, at what cost.
On the other hand, the bill presents an opportunity for insurers to innovate. Those willing to embrace this emerging asset class could develop bespoke policies or add-on coverage specifically for digital assets at a cost. This could attract a new customer base seeking protection for their cryptocurrency holdings outside of separate cyber policies.
The Property (Digital Assets) Bill 2024 represents a significant step towards recognising digital assets as objects of personal property rights. While it does not definitively settle the issue of whether cryptocurrencies are insurable under household policies, it lays the groundwork for future legal developments that could reshape the landscape of insurance for digital assets. For insurers, this means preparing for potential future risks while also exploring new opportunities to offer innovative products tailored to the needs of the digital age. As the legal status of cryptocurrencies continues to evolve, insurers must remain vigilant and adaptable to the changes ahead.
We will continue to provide updates as this bill makes its way through Parliament.
For more information on anything discussed in this article, please get in touch.
Natalie Larnder - Head of Market Affairs
Matthew Rogers - Partner and Head of Property Risks & Coverage
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