In what appears to be the first court determination on the issue, an Ohio court recently ruled that Bitcoin constitutes “property,” not “money,” for purposes of insurance coverage. As this distinction plays out in other courts across the country, it will have significant implications not just in the insurance coverage arena, where most policies impose strict limits on the recovery of lost or stolen money, but in other areas of the law involving property interests.
The case – Kimmelman v. Wayne Insurance Group
in the Franklin County, Ohio, Court of Common Pleas – involved an insurance claim for $16,000 worth of Bitcoin that was stolen from the plaintiff. The insurance company only awarded the plaintiff $200 on the claim, contending that the stolen Bitcoin was “money,” and therefore subject to limits in the insurance policy on coverage for stolen money. With very little applicable guidance from previous court cases or federal statutes, the court relied on an Internal Revenue Service Notice stating that “virtual currency is treated as property” for tax purposes, and denied the insurance company’s attempt to impose the policy’s coverage limits related to “money.”
While the IRS and tax professionals have been grappling with the tax treatment of Bitcoin for several years, the broader implications of the characterization of cryptocurrencies in property law, civil forfeiture law, commodities law, bankruptcy law, and the Uniform Commercial Code issue are just now becoming evident. This treatment of Bitcoin and other cryptocurrencies will undoubtedly evolve as their use matures, and you can be sure that this decision will not be the last word on the issue.