Many risks companies face in the real world will exist in the metaverse, albeit with a digital twist. For example, many metaverse projects involving the use of a “currency” feature their own native coins, which in many instances can be swapped for other cryptocurrencies or even fiat currency. These activities and operations may lead to allegations of wrongful acts implicating directors and officers (D&O) or errors and omissions (E&O) coverage, among other types of coverage. Many metaverse projects will feature content creation that could implicate intellectual property rights, thereby triggering these same coverages or, potentially, commercial general liability (CGL) coverage or specialized intellectual property coverage. In the metaverse, people can interact with each other via their avatars and haptic feedback and, in some cases, may be accused of causing emotional distress or other torts through those interactions. Events like that may trigger a variety of liability insurance policies, including, if occurring within the virtual workplace, employment practices liability policies. These examples, and the examples set forth below, are just a sample of the core insurance coverages that could be implicated by risks presented by the metaverse.
D&O insurance shields a company’s board and management and protects their personal assets from liability. It typically insures claims made against (1) the directors and officers when the company does not indemnify them (“Side A” coverage) and (2) the company itself when it is required to indemnify its directors and officers for those claims (“Side B” coverage). D&O policies also can include entity coverage protecting the company against its own liability in a securities claim or (in the case of private companies) any non-excluded claim made against the company (“Side C” coverage). D&O insurance is particularly important because it can cover defense costs and indemnity for a variety of claims and suits, depending on the policy language.
D&O risks presented by the metaverse may include:
- Securities claims
- Intellectual property claims
- Breach of fiduciary duty claims
- Misrepresentation claims
- Shareholder and derivative lawsuits
- Regulatory investigations
An insured must be wary of the specific terms and provisions of their D&O policies. While existing D&O policies likely would cover metaverse-related claims for directors and officers of companies entering the metaverse in the same manner that they cover non-metaverse claims, many insurers deny coverage for cryptocurrency-related losses or issue policies with language severely limiting such coverage. In particular, companies dealing in cryptocurrency should be mindful of the definition of a “Securities Claim.” Depending on the policy language and the applicable law of the jurisdiction, a D&O policy may protect a company and/or its management from metaverse-related liability as a “Securities Claim.”1
Additionally, regulators in the future could investigate metaverse companies for a variety of alleged acts or omissions involving operations, cryptocurrency and non-fungible token (NFT) transactions, user conduct, and privacy and data security, to name just a few. These investigations can be costly. A D&O policy may cover some or all of the costs associated with such an investigation. However, it is important to ensure that the policy does not exclude investigations for cryptocurrency-related activities or the insured’s operations in the metaverse.