A U.S. appeals court has upheld a ruling rejecting a homeowner’s attempt to hold his insurer, Lemonade Insurance, liable for a $170,000 loss from a cryptocurrency scam, citing limitations within his homeowner’s insurance policy.
Appeals Court Denies Homeowner’s Crypto Loss Claim
On October 24, the Fourth Circuit Appeals Court ruled that Ali Sedaghatpour’s lawsuit against Lemonade Insurance was correctly dismissed by a Virginia district court. Sedaghatpour argued that his homeowner’s policy should cover his substantial crypto loss, but the appeals panel determined that the policy terms only protect against “direct physical loss” of property, which does not include digital assets like cryptocurrency.
Sedaghatpour initially filed suit against Lemonade Insurance in 2022 after scammers reportedly stole $170,000 worth of cryptocurrency he had transferred to APYHarvest, a fraudulent entity posing as an investment firm. Sedaghatpour claimed his crypto, stored in a digital wallet he kept in his home safe, should qualify as personal property covered under his policy’s $160,000 personal property limit.
Court’s Reasoning: Crypto Not a Physical Asset
Virginia law defines “direct physical loss” as material harm or destruction of property. The appeals court ruled that cryptocurrency, as digital and intangible, does not meet this standard. In their decision, the judges noted that even though a crypto hardware wallet is a tangible item, the data it holds does not qualify as “tangible property” and is therefore ineligible for coverage under the personal property policy.
Lemonade Insurance did compensate Sedaghatpour with $500 under a separate policy provision covering losses from theft or unauthorized use of electronic transfer devices, but this amount fell significantly short of his total loss. The court ultimately agreed that this payout fulfilled Lemonade’s obligations.
A Rare Legal Attempt to Cover Crypto Under Home Insurance
Sedaghatpour’s case highlights a growing challenge in defining insurance coverage for cryptocurrency assets, particularly in homeowner policies. This appeal marks a rare instance where a crypto owner sought to classify digital currency as personal property, aiming to secure insurance coverage for losses due to fraud. However, current legal interpretations continue to uphold that crypto, given its digital nature, lacks the physical characteristics required for such claims under standard homeowner policies.
Sedaghatpour and Lemonade Insurance’s representatives did not immediately respond to requests for comment.
