A homeowner’s attempt to sue his insurer for failing to cover his $170,000 loss to a crypto scam was rejected by a United States appeals court, with a three-judge panel ruling there had been no error in dismissing his case.
The Fourth Circuit Appeals Court ruled on Oct. 24 that a Virginia District Court judge was correct in ruling that Ali Sedaghatpour had no breach of contract claim against Lemonade Insurance because 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.
The appellate judges said that under Virginia law, direct physical loss “requires present or impending material destruction or material harm.”
They added: “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.”
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 that in December 2021 he transferred $170,000 to APYHarvest — 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 he accused it of stealing and selling his crypto.
Sedaghatpour said he filed a claim with Lemonade Insurance over the loss, asserting it should be covered under a policy providing up to $160,000 coverage for personal property.
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.
