BitPay’s Insurer MBIC Has Formally Responded to Lawsuit

BitPay’s insurer Massachusetts Bay Insurance Company (MBIC) has formally refused to entertain BitPay’s compensation claim after they lost 5,000 Bitcoins in an alleged scam.

In addition to formally defending its position not to pay any compensation to BitPay, Massachusetts Bay Insurance Company also made a request to the court to dismiss the case.

BitPay lost 5,000 Bitcoins in a scam back in December 2014 when hackers gained access to emails of the Chief Executive Officer, David Bailey. Hackers also accessed the Google account of Bryan Krohn, the Chief Financial Officer. Then, the hackers staged an elaborate scam and requested Bitcoin payments from the CFO’s email account.

According to Atlanta Business Chronicle, the lawsuit said that after capturing Mr. Krohn’s BitPay credentials, the hacker used that information to hack into Mr. Krohn’s BitPay email account to fraudulently cause a transfer of Bitcoin.” The total loss based on the Bitcoin exchange rate of that time said to be valued at $1,850,000.

Later, when BitPay discovered they have been scammed, they claimed $1 million compensation, up to its maximum coverage under the policy, which Massachusetts Bay Insurance Company refused and the situation escalated to a formal lawsuit. However, after considering the 50,000 deductible, the actual claim was for $950,000.

Massachusetts Bay Insurance Company’s position is that the loss of BitPay is indirect and it did not happen on BitPay’s premises, saying the circumstances are not covered under the policy. The insurer formally defended its position in the court that since the BitPay executives authorized the payments, they are responsible for the losses, regardless if they were being “tricked” or not. If hackers made those transactions themselves, only then Massachusetts Bay Insurance Company would consider it as a fraud case.

Regardless of the outcome of the lawsuit, the whole fiasco once again proved the vulnerability of FinTech companies in the face of cyber-attacks. In this case, BitPay executives only helped reduce the public confidence in digital currencies.