One of the underwriters behind BitGo’s $100 million cryptocurrency insurance policy has accused the custodian of exaggerating the scope of its coverage by using “ambiguous language” in public statements.

The controversy boils down to three words. In its February 20 press release, BitGo listed “third-party hacks” among the risks covered by a group of 10 Lloyd’s of London underwriters.

That was misleading, according to one of the group’s 10 members, since it implies the policy covered hacks of “hot,” or online wallets. In fact, the policy strictly covers theft or loss of assets kept in “cold storage,” meaning the cryptographic keys are kept offline.

In an email to insurance brokers obtained by CoinDesk, this underwriter said,

As such, the coverage is limited to “hacks” of “offline private keys,” requiring the third party to obtain direct physical access to them, noted the underwriter, whose email was shared with CoinDesk on the condition that his company not be identified.

The official went on to describe the language in the announcement as “ambiguous,” but added that since his firm did not lead this policy, it had “no say over the language used in the press release.”

When contacted by CoinDesk, BitGo argued it had used clear and specific wording, noting that right before the line about “third-party hacks,” the press release stated the insurance “covers digital assets where the offline private keys are held 100% by” the custodian (emphasis added here). The company also said Lloyd’s had reviewed and approved this wording.

BitGo told CoinDesk in a statement,

Due to the nature of digital assets, the inherent threat is the use of a computer, USB device, frequency reader, etc. to hack or breach cold wallet hardware, software, or processes, said BitGo.

“Cold storage involves devices and cryptographic keys that are not exposed to online networks removing the threat vector of remote network access, but there are other attack vectors that would involve technology,” it said.

It might be tempting to dismiss the underwriter's complaints as sour grapes or pedantry. But it’s understandable why an underwriter would be worried about its risks being misconstrued.

Stepping back, specialist insurance policies such as those for crypto are handled by groups of underwriters, known in industry parlance as “towers.” The lead underwriter, which understands the risk deeply, will offer the first $10 million of losses, say, and then the rest of the capital gets filled out by the other syndicates further up the tower, which will demand a smaller premium.

All this is negotiated at the Lloyd's of London market, which sets rules for conduct among participants.

In the case of the BitGo policy, AMTrust was the lead underwriter and the only one that the company identified when it announced the coverage. The underwriter who wrote the email was one of the syndicates taking on a smaller exposure. (Both Lloyd’s and AMTrust declined to comment.)

It’s also important to remember that crypto insurance is thin on the ground and a large amount of cover for hot wallets, which are typically the target of third-party hacks, is especially hard to come by.

Some large exchanges simply hold disaster funds of bitcoin to cover these losses themselves. According to insurance industry sources, there is a stark disparity in premiums depending on whether the crypto being insured is in a hot or cold wallet – the hot ones carrying the more expensive price tag.

Hence, if anyone who read BitGo’s announcement had incorrectly inferred that “third-party hacks” meant hot wallet coverage, as the underwriter feared, they might draw unrealistic conclusions about the market.

"As a public relations event, the press release may have been a success, but there is certainly nothing newsworthy with respect to the scope of the cover," said Jerry Pluard, the president of Safe Deposit Box Insurance Coverage, an insurance broker in the Chicago area who arranges crypto policies for custodians.

The underwriter said in his email he would meet with Lloyd’s “in an attempt to obtain some consistency in their approach to media communications going forward,” concluding:

BitGo CEO Mike Belshe image via CoinDesk archives