A United States appeals court has ruled that standard home insurance policies do not cover losses from cryptocurrency theft, emphasizing that such policies typically only cover physical property damage or loss.
The Fourth Circuit Appeals Court upheld a lower court’s decision to dismiss a lawsuit filed by homeowner Ali Sedaghatpour against Lemonade Insurance.
Sedaghatpour had sought coverage for a $170,000 loss he incurred in a cryptocurrency scam in December 2021.
Sedaghatpour had transferred the funds to APYHarvest, an entity later identified as a fraudulent investment firm by the Central Bank of Ireland. He claimed to have stored the key to the crypto wallet provided by APYHarvest in his home safe. Upon discovering that his crypto holdings had been emptied, he filed a claim under his homeowner’s insurance policy, which covered personal property losses up to $160,000.
Lemonade Insurance denied the claim, arguing that cryptocurrency, being intangible, does not fall under the definition of “direct physical loss” covered by the policy. The court agreed, stating that Sedaghatpour’s policy was limited to physical harm or destruction of tangible assets.
“We have reviewed the record and find no reversible error,” the appellate judges noted, citing Virginia law which defines “direct physical loss” as requiring “material destruction or harm.”
The ruling potentially sets a precedent for future cases involving crypto losses and clarifies that standard home insurance policies may not extend to digital assets.
While this decision underscores the limitations of traditional insurance policies in the context of digital assets, it also highlights the increasing demand for specialized crypto insurance products. The digital asset insurance market is still nascent but evolving as insurers explore ways to address the unique risks associated with cryptocurrencies.
Some providers, such as Evertas and Relm Insurance, offer specialized policies that cater to exchanges, custodians, and, in some cases, individual wallet holders. These policies typically cover losses from hacking, theft, and operational errors. However, the availability of personal crypto insurance options remains limited, with offerings primarily focused on institutional clients.
The court also noted that Lemonade Insurance had fulfilled its obligation under a separate section of the policy that provided up to $500 coverage for losses from “theft or unauthorized use of an electronic fund transfer card or access device used for deposit, withdrawal, or transfer of funds.”
