Bankruptcy is a fraught circumstance for D&O insurance. As discussed in the following guest post from Sarah Abrams, Head of Claims Baleen Specialty, a division of Bowhead Specialty, the usual bankruptcy complications are further amplified in the crypto context. I would like to thank Sarah for allowing me to publish her article as a guest post on this site.
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In a December 8, 2025, memorandum opinion, Southern District of Texas Bankruptcy Judge Marvin Isgur addressed a recurring issue in insolvency-driven D&O coverage litigation: when and how a bankruptcy estate may seek to monetize directors’ and officers’ insurance as one of the estate’s last meaningful assets. The ruling arose out of the Chapter 11 proceedings of Compute North Holdings, Inc. and its eighteen affiliated entities (Compute North), a cryptocurrency-infrastructure company that provided data-center hosting services for Bitcoin mining operations. Compute North filed for bankruptcy protection in September 2022, at the height of the “crypto winter,” a period marked by sharply declining digital-asset prices, escalating energy costs, and persistent global supply-chain disruptions that placed acute financial pressure on crypto-related businesses.
Compute North’s bankruptcy followed a broader wave of high-profile crypto-related Chapter 11 filings in 2023 and 2024, including Voyager Digital, Celsius Network, FTX and Alameda Research, BlockFi, and Genesis Global. Those insolvencies unfolded alongside heightened regulatory scrutiny by the SEC, DOJ, CFTC, and other federal agencies. While, as D&O Diary readers are aware, the current Administration has signaled a comparatively less aggressive regulatory posture toward the cryptocurrency marketplace, the Compute North case underscores that regulatory intensity may not be the sole driver of D&O underwriting risk in the cryptocurrency sector.
Compute North may serve as a cogent reminder of the exposure faced by D&O insurers when an insured’s business model is closely tied to historically volatile digital assets. Notably, Bitcoin has experienced dramatic price swings in 2025, setting new highs while also enduring significant sell-offs, and may be on track for its first annual decline since 2022. As cryptocurrency continues to be integrated into corporate infrastructure and financing models, Judge Isgur’s decision to allow Compute North’s bankruptcy trustee to tap its D&O policy may prompt D&O underwriters evaluating crypto-related risks to ask, even in a more permissive regulatory environment, what governance, asset-management, and disclosure issues materialize when crypto markets turn sharply downward.
The discussion below examines the Compute North proceedings and the ensuing dispute over D&O insurance proceeds in an effort to gauge potential exposure to D&O underwriters should there be another “crypto winter.”
Compute North Bankruptcy and Coverage Litigation
At the time of its Chapter 11 bankruptcy filing, Compute North’s remaining assets largely consisted of modular crypto-mining containers and a tower of management liability insurance. In February 2023, Compute North’s bankruptcy court confirmed a plan that vested the company’s remaining assets in a reorganized debtor structure and established a litigation trust, with Tribolet Advisors LLC (Tribolet Advisors) appointed as both plan administrator and litigation trustee to pursue retained causes of action for the benefit of creditors, including potential claims against former directors and officers.
Following plan confirmation, Tribolet Advisors began investigating the circumstances leading to the bankruptcy and identified potential fiduciary-duty and corporate-waste claims against former management. However, Tribolet Advisors’ claims ran parallel to competing creditor litigation. In November 2022, a single unsecured creditor, BitNile (now Sentinum), had sued several former Compute North executives in federal court in Minnesota (BitNile), alleging fraud and conspiracy. Concerned that defense costs and potential payments in the BitNile action would erode the limited D&O policy limits, Tribolet Advisors filed an adversary complaint in July 2024, seeking injunctive relief to preserve the proceeds of the D&O policies for the estate’s benefit.
The complaint alleged that Compute North’s D&O insurance represented one of the estate’s only meaningful sources of recovery and that depletion of the policies before resolution of the estate’s own D&O claims would irreparably harm creditors. Tribolet Advisors also alleged that Compute North’s former directors and officers failed to maintain and safeguard dozens of crypto-mining containers stored in Texas and North Carolina, resulting in millions of dollars in lost value. According to Judge Isgur’s memorandum, after making a series of settlement demands, the trustee ultimately sought a $4.65 million within-limits settlement under Compute North’s post-petition D&O policy. The insurer refused to consent, asserting that much of the alleged misconduct occurred pre-petition and fell outside the policy’s period.
Tribolet Advisors responded by filing an emergency motion asking the bankruptcy court to determine that the settlement demand was reasonable and that the insurer had unreasonably withheld consent. After a multi-day evidentiary hearing, Judge Isgur held that the post-petition D&O policy did cover the alleged wrongful acts and that the $4.65 million settlement demand was reasonable, particularly given the likelihood that continued defense costs alone would exhaust the remaining policy limits. Notably, the judge declined, under Texas law, to compel its go-forward D&O insurer to fund the proposed settlement.
Discussion
For D&O underwriters, the Compute North bankruptcy and ensuing coverage litigation exemplify how D&O insurance can become the focal point of post-bankruptcy value when operating assets rapidly depreciate. In Compute North, tangible assets, particularly modular crypto-mining containers, lost value sharply as market conditions deteriorated, leaving the D&O insurance tower as one of the estate’s most meaningful potential recovery sources. The litigation trustee accordingly sought to preserve and monetize the D&O policies, positioning the proceeds not merely as protection for individual directors and officers, but as an estate asset central to creditor recoveries. In this respect, Compute North offers a useful preview of how D&O coverage programs may be tested in future crypto-related bankruptcies.
First, as illustrated in the Compute North creditor litigation, defense cost erosion could become a significant issue, especially if multiple proceedings triggering D&O coverage are filed. In Compute North, the trustee’s estate-driven fiduciary-duty claims competed with creditor litigation alleging fraud, creating immediate pressure on policy limits and heightening disputes over priority, allocation, and consent.
Second, the insurer’s reliance on pre-petition conduct arguments proved fragile in the face of a policy structure that included broad runoff provisions and wrongful-act definitions extending coverage to earlier conduct. As Judge Isgur’s decision demonstrates, once a bankruptcy court determines that alleged misconduct falls within the temporal and substantive scope of coverage, insurers may find it difficult to deny coverage based upon the date of policy inception.
Finally, Compute North illustrates how operational failures in crypto-related businesses can be reframed, after a “crypto winter”, as governance failures giving rise to fiduciary-duty claims. Allegations concerning the deterioration and mismanagement of crypto-mining infrastructure, while operational in nature, were recast in Compute North’s case as breaches of oversight, care, and loyalty once the company entered bankruptcy. While hindsight-driven litigation risk in the bankruptcy setting is not unique to crypto, the sector’s dependence on specialized capital-intensive assets and volatile pricing may increase D&O underwriting exposure.
Thus, as cryptocurrency becomes more deeply integrated into corporate operations and financing models, future “crypto winters” may generate similar coverage disputes, with courts scrutinizing D&O policy runoff language, consent decisions, and limits adequacy.
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