A US appeals court has ruled that home insurance does not cover crypto losses, emphasizing that insurance only applies to physical property.
On October 24, the Fourth Circuit Court of Appeals found that Lemonade Insurance was correct in denying homeowner Ali Sedagatpour’s $170,000 claim for funds lost in a cryptocurrency scam.
The ruling follows a lawsuit Sedagatpour first filed after he became a victim of a cryptocurrency investment scam after transferring $170,000 to APYHarvest in December 2021. The entity, later identified by the Central Bank of Ireland as a fraudulent investment company, had provided access to Mr Sedagatpour. He claimed to have kept the keys to his encrypted wallet in his home safe.
After realizing that his cryptocurrency holdings were empty, Sedagatpour requested homeowner’s insurance, which covers up to $160,000 in personal property losses.
In response, Lemonade Insurance argued that while cold hardware wallets may be tangible, cryptocurrencies remain digital and cannot be compensated for “direct physical loss.”
The court agreed, ruling that Sedaghatpur’s policy was limited to physical harm and destruction of tangible property. Because cryptocurrencies are intangible, digital theft was not covered.
Sedagatpur continued to appeal, taking the case to the current trial in the Court of Appeals, where a three-judge panel upheld the Virginia District Court’s original decision.
“We have reviewed the record and found no irreversible error,” the appellate judges wrote.
The court cited Virginia law, noting that “direct physical loss” requires a loss that involves “material destruction or harm.” They concluded that the Sedaghatpur homeowner’s policy was not applicable because virtual currency cannot be physically damaged.
The ruling clarifies that standard home insurance policies may not apply to digital assets and could set a precedent for future litigation involving crypto losses.
While the court’s decision highlights the limitations of standard insurance contracts, it also highlights the growing demand for specialized crypto insurance products. Digital asset insurance is still a relatively new market and is slowly evolving as insurers explore coverage options for the unique risks associated with digital assets.
Some providers, such as Evertas and Relm Insurance, now offer customized policies to protect the wallet holdings of exchanges, custodians, and certain individuals from loss due to hacking, theft, or operational mishaps. Masu. However, these services are primarily tailored to institutional customers, and personal cryptocurrency insurance options remain limited.
