Berkley Insurance Seeks to Transfer $22.5M Premium Clawback Case Filed in Crypto Lender BlockFi Wind-down to Bankruptcy Court

News | February 26, 2024 By:

On Friday, February 16, 2024, Berkley Insurance Co. filed a notice seeking to remove a lawsuit to the U.S. Bankruptcy Court for the District of New Jersey. The lawsuit was filed by the wind-down estate of BlockFi, a bankrupt cryptocurrency lender, attempting to claw back $22.5 million in directors and officers (D&O) insurance premiums paid pre-bankruptcy.

BlockFi had petitioned for Chapter 11 bankruptcy protection in November 2022. In September, Judge Michael Kaplan of the U.S. Bankruptcy Court for New Jersey confirmed BlockFi’s Chapter 11 liquidation plan.

In January, BlockFi’s wind-down estate filed a complaint in New Jersey Superior Court against nine insurance companies, including Berkley. The complaint demanded the return of $22.5 million in premiums paid for a $30 million D&O policy issued just 10 days before BlockFi’s bankruptcy.

BlockFi argued the premium payments were disproportionate to the level of coverage provided and that half of the coverage was for actions taken after the bankruptcy filing, when claims were unlikely to arise. It also contended the policy contained a clause stating it would be void unless a covered party filed for bankruptcy by December 2022, which did not occur.

In its removal motion, Berkley said the lawsuit belongs in bankruptcy court. It argued the confirmed Chapter 11 plan states BlockFi assumed the D&O policies and bars attempts to cancel them.

Berkley said by filing the state court suit seeking to void the D&O policy, BlockFi has violated the bankruptcy court’s confirmation order.

The insurers issued the policy to protect BlockFi’s directors and officers from liability to angry customers. However, BlockFi claims the premium payment was a last-minute “cash grab” as the company headed into bankruptcy.

Please contact BlockTribune for access to a copy of this filing.