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Vol. 12 - Issue 7

September 6, 2023


Court Says No Coverage For Stolen Bitcoin


The Texas federal court’s decision is Nationwide Mutual v. Choi is relatively mundane as coverage issues go.  It involves theft and allegedly intentional conduct.  But since the theft was of Bitcoin, I included it here.  If it had involved theft of tires or hammers or Twizzlers, I would not have included it here.  Ok, probably Twizzlers.

Steven Kowalki sued Hiu Lam Cookie Choi, Brandon Ng and others for theft of 1,400 Bitcoin through a malware attack.  At the time of the filing of the suit, the cryptocurrency was worth more than $80 million.  Yowza! 

Choi and Ng sought coverage under a homeowner’s and personal umbrella policy issued by Nationwide.  Nationwide filed an action seeking a declaration that it owed no duty to defend or indemnity them on the basis that, as you would expect, no “occurrence.” 

The court, in Nationwide Mut. Ins. Co. v. Choi, No. 22-01231 (S.D. Tex. July 25, 2023), agreed that no coverage was owed.  The policies cover negligent conduct, the court observed, and the underlying action alleged only intentional conduct. 

Choi and Ng argued that a defense was owed as paragraph 137 of the underlying complaint alleged that, in the alternative, they acted negligently.  However, the court refused to put any weight on this reference to negligence as it was belied by other allegations in the complaint:

“The primary allegation in the underlying complaint is that all of the named defendants—including Choi and Ng—participated in a scheme to steal Bitcoin from Kowalski and deposit the Bitcoin in their online cryptocurrency accounts.  Understood in proper context, Paragraph 137 simply addresses the possibility that these underlying defendants may contend that they were not the original thieves—even though the stolen Bitcoin was transferred to their accounts. The paragraph describes the elaborate correspondence with the original thief that would be required to make such transfers if this were true. It contains no description of accidental or negligent conduct. The intentional nature of the conduct described is quite clear, with the subject paragraph situated under the heading, ‘The Individual Defendants’ Obvious Efforts to Launder Plaintiff’s Stolen BTC.’  And more, it’s placed below the statement, ‘There is no plausible innocent explanation for the Individual Defendants' receipt of Stolen Bitcoin into their accounts.’”

[There may have also been the issue whether theft is “property damage,” as courts have addressed.  And even more so here, as Bitcoin seems unlikely to be tangible property.  In any event, that it not addressed in the opinion.  Twizzlers are definitely tangible property.]




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