October 12, 2015

Summary: ISO has created a new endorsement, Include Virtual Currency as Money CR 25 46 11 15. This endorsement modifies both the Employee Theft and Forgery Policy CR 00 28 11 15 and the Government Employee Theft and Forger Policy form CR 00 30 11 15. It provides coverage for virtual currency that is excluded under certain forms.

Topics covered: Introduction Employee theft and forgery and government employee theft and forgery

Introduction

Virtual currency is currency that is created; it is not backed by any central monetary authority, there is nothing tangible, and while users consider it currency the Internal Revenue Service considers it property for tax purposes, and not currency. It is created by computers performing complicated equations call mining. The mining network monitors and verifies the creation of the currency. Bitcoin is a popular virtual currency. Bitcoins may only be used once, and they are tracked on a public ledger called a blockchain. Bitcoins can be bought and sold in return for traditional currency on many exchanges. Their value however changes rapidly, and can be hacked like any other computer information. They are considered decentralized, as there is no central point of control over the money supply.

The form contains a schedule to list a limit of coverage, name of currency, and exchange on which it is tracked. The form contains two parts, one for the Employee Theft and Forgery Policy and one for the Government Employee Theft and Forgery Policy. The wording is identical for both forms, therefor only one analysis is needed.

Employee Theft and Forgery Policy and Government Employee Theft and Forgery Policy

With regard to this Include Virtual Currency As Money endorsement, the provisions of the Policy to which this endorsement is attached apply, unless modified by this endorsement.

A. Under the Employee Theft And Forgery Policy:

1.Exclusion D.1.g. Virtual Currency is replaced by the following:

g.Virtual Currency

Loss involving virtual currency of any kind, by whatever name known, whether actual or fictitious including, but not limited to, digital currency, crypto currency or any other type of electronic currency. However, if a Virtual Currency Limit Of Insurance is shown in the Schedule, we will pay up to that amount for loss of virtual currency shown in the Schedule. That amount is part of, not in addition to, the Employee Theft Insuring Agreement Limit Of Insurance shown in the Declarations.

2.Paragraph (1) of the Valuation – Settlement Condition is replaced by the following:

(1)Money

(a)Other Than Virtual Currency

Loss of “money”, other than virtual currency, but only up to and including its face value. We will, at your option, pay for loss of “money” issued by any country other than the United States of America:

(i) At face value in the “money” issued by that country; or

(ii) In the United States of America dollar equivalent, determined by the rate of exchange published in The Wall Street Journal on the day the loss was “discovered”

(b)Virtual Currency

Loss of “money” in the form of virtual currency but only up to and including its value at the close of business on the day the loss was “discovered” as determined by the rate of exchange published by the Exchange shown in the Schedule. We may, at our option, pay the value of the virtual currency in the United States of America dollar equivalent or replace it in kind.

3.In Section F. Definitions, the definition of “money” is replaced by the following:

“Money” means:

a.Currency, coins and bank notes in current use and having a face value;

b.Traveler's checks and money orders held for sale to the public;

c.Virtual currency shown in the Schedule; and

d.Deposits in your account at any financial institution.

Analysis

Section1 modifies the exclusion of virtual currency so that if a dollar limit is listed in the schedule, the carrier will pay up to that limit for the loss of virtual currency shown in the schedule. This is not additional coverage, it is part of the overall limit of coverage available in the Employee Theft and Forgery form. As in the Employee Theft and Forgery form, virtual currency is not defined, so any type of electronic currency can be covered. The form highlights that virtual currency includes digital currency, crypto currency, or any other type or electronic currency, by whatever name known.

Next the valuation settlement condition is modified. It specifies that money other than virtual currency is covered, and that when such money is issued by any country other than the United States, that settlement is based on the face value of the “money” issued by that country or the exchange rate in U.S. funds on the date the loss was discovered. The exchange rate used is that listed in the Wall Street Journal.

Settlement for virtual currency is handled a little differently. The vale is paid in United States dollars or the currency is replaced in kind. The choice is the carrier's. The value is determined by the rate of exchange in the Wall Street Journal on the day the loss was discovered.

The definition of “money” is then modified to include virtual currency in the definition. In order to be covered. the virtual currency must be listed in the schedule; there are no parameters for coverage if the currency is not scheduled on this endorsement.