A homeowner’s attempt to sue his insurer for failing to cover his $170,000 loss to a crypto scam has failed in a United States appeals court, with a three-judge panel ruling there was no error in dismissing his case.
The Fourth Circuit Appeals Court ruled on Oct. 24 that a Virginia District Court judge made no error in ruling that Ali Sedaghatpour has no breach of contract claim against Lemonade Insurance as his homeowner’s policy only covered “direct physical loss” of property.
Sedaghatpour sued Lemonade Insurance in 2022, claiming the insurer should have covered him under the policy for $170,000 in crypto stolen from him in a scam.
The suit was a rare case of a crypto user attempting to claim that crypto is personal property under a home insurance policy and legally force an insurer to cover scam crypto losses.
However, the appellate judges explained that under Virginia law, direct physical loss “requires present or impending material destruction or material harm.”
“Because the digital theft of digital currency does not amount to a ‘direct physical loss,’ no coverage for Sedaghatpour’s loss of cryptocurrency is available under that section,” they added.
The appeals court panel dismissed Sedaghatpour’s bid, saying Lemonade Insurance had already satisfied its obligation from a section of the policy that provided up to $500 for losses from “theft or unauthorized use of an electronic fund transfer card or access device used for deposit, withdrawal or transfer of funds.”
Sedaghatpour sued Lemonade Insurance in March 2022, saying he transferred $170,000 to APYHarvest in December 2021 — a scam entity claiming to be an investment firm, according to the Central Bank of Ireland.
In the complaint, Sedaghatpour said APYHarvest gave him a key to a crypto wallet containing the crypto he transferred to it, which Sedaghatpour said was stored in a safe in his home.
He later found that the wallet APYHarvest had set up for him was cleaned out and accused it of stealing and selling his crypto stash. Sedaghatpour said he filed a claim with Lemonade Insurance over the loss, asserting it should be covered under a policy providing coverage for personal property up to $160,000.
A federal court judge tossed Sedaghatpour’s lawsuit in February 2023, which he appealed a month later.
Lemonade Insurance argued to the appeals court that while a crypto hardware cold wallet is a tangible object “that does not imbue the data it contains with tangible properties” and, as such, can’t be a “direct physical loss” of property.
“Regardless of the matter of storage, cryptocurrency remains intangible, it added.
Sedaghatpour and Lemonade Insurace’s lawyer did not immediately respond to requests for comment.
