U.S. Court of Appeals rules that standard home insurance policies do not cover losses due to crypto theft, stressing that such policies typically only cover damage or loss to physical property did.
The Fourth Circuit Court of Appeals upheld a lower court’s decision to dismiss homeowner Ali Sedagatpour’s lawsuit against Lemonade Insurance.
Mr. Sedagatpour was seeking compensation for $170,000 in losses he suffered from a cryptocurrency scam in December 2021.
Sedaghatpur had transferred funds to APYHarvest. APYHarvest was later recognized as a fraudulent investment company by the Central Bank of Ireland. He claimed to have stored the crypto wallet keys provided by APYHarvest in his home safe. Upon discovering his crypto holdings had been emptied, he filed a claim under his homeowner’s policy, which covers personal property losses up to $160,000.
Lemonade Insurance denied the claim, arguing that virtual currency is intangible and therefore does not fall under the definition of “direct physical loss” for insurance coverage. The court agreed, saying Sedaghatpur’s policy was limited to physical harm and destruction of tangible property.
The appellate judges noted that they had “reviewed the record and found no irreversible error,” and defined “direct physical loss” as requiring “material destruction or harm.” He cited Virginia law.
The ruling could set a precedent for future litigation involving crypto losses, making clear that standard home insurance policies may not apply to digital assets.
While this decision highlights the limitations of traditional insurance contracts related to digital assets, it also highlights the growing demand for specialized crypto insurance products. The digital asset insurance market is still in its infancy, but is evolving as insurers seek ways to address the unique risks associated with cryptocurrencies.
Some providers, such as Evertas and Relm Insurance, offer specialized insurance coverage for exchanges, custodians, and in some cases individual wallet owners. These insurances typically cover losses due to hacking, theft, or operational error. However, the available personal cryptocurrency insurance options remain limited, and their offerings are primarily focused on institutional customers.
The court also found that Lemonade Insurance satisfied its obligation under a separate clause in the insurance contract that “covers up to $500 for loss due to theft or unauthorized use of an electronic funds transfer card or access device used to make deposits, withdrawals, or transfers.” He pointed out that he had done so. funds. ”
