A homeowner tried to sue his insurance company, claiming they did not cover his $170,000 loss from a crypto scam. However, a United States appeals court rejected his case.
A panel of three judges made the decision. They ruled that dismissing his case was correct.
Court Rules Against Homeowner in Crypto Insurance Dispute
On October 24, the Fourth Circuit Appeals Court supported the decision of a judge from the Virginia District Court. The judge found that Ali Sedaghatpour could not prove a breach of contract against Lemonade Insurance.
His homeowner’s policy only covered “direct physical loss” of property and did not include losses from scams involving digital assets like cryptocurrency.
In context, Sedaghatpour filed a lawsuit against Lemonade Insurance in 2022. He claimed that the insurance company should have paid him for the $170,000 worth of cryptocurrency that scammers stole from him.
This case was unusual. It was one of the few instances where a crypto user tried to argue that cryptocurrency is personal property.
Sedaghatpour wanted to force the insurance company to cover his losses from the scam under his home insurance policy. He believed that the policy should include protection for digital assets like cryptocurrency.
The appellate judges explained that Virginia law defines direct physical loss. According to the judges, this type of loss means there must be actual or potential damage to material things.
They stated that the theft of digital currency does not count as “a direct physical loss.” Therefore, Sedaghatpour cannot get coverage for his stolen cryptocurrency under that part of the law.
Since cryptocurrency is digital and not a physical object, it does not meet the legal requirements for coverage. Therefore, the judges decided that the insurance company would not pay Sedaghatpour for his crypto loss claims.
The appeals court panel rejected Sedaghatpour’s request and explained that Lemonade Insurance had already met its responsibilities.
Navigating Crypto Claims: Court Rules on Limits of Insurance Coverage
According to the policy, the insurance would cover losses up to $500. This coverage applied to theft or unauthorized use of an electronic fund card or access device.
Since the insurance company had paid Sedaghatpour this coverage, the judges decided that his claim for a larger amount was not valid.
In December 2021, Sedaghatpour sent $170,000 to a company called APYHarvest, a scam pretending to be an investment firm. This information came from the Central Bank of Ireland.
In his complaint, Sedaghatpour explained that APYHarvest provided him with a key for a crypto wallet that contained the cryptocurrency he transferred. He also mentioned that he stored this cryptocurrency in a safe at his home.
Later, Sedaghatpour discovered that the wallet APYHarvest had set up for him was empty. He accused APYHarvest of stealing and selling his cryptocurrency.
Feeling frustrated, Sedaghatpour decided to file a claim with Lemonade Insurance for his loss. He believed that the loss should be covered under his policy, which offered up to $160,000 in coverage for personal property.
However, in February 2023, a federal court dismissed his lawsuit. A month later, he decided to appeal this decision.
Lemonade Insurance argued in the appeals court that a crypto hardware cold wallet is a physical object. However, they explained that this does not give the data contained in it tangible properties.
Due to this, they said it cannot be considered a “direct physical loss” of property. They added that cryptocurrency is still intangible no matter how it is stored. This means it does not have a physical form like cash or other property.
