US court confirms home insurance will not cover crypto losses

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As a seasoned crypto investor with a fair share of digital assets under my belt, this recent court ruling has left me scratching my head and reaching for my wallet. The fact that home insurance doesn’t cover cryptocurrency losses is a bitter pill to swallow, especially after being scammed out of hard-earned funds.

A U.S. appellate court determined that standard home insurance doesn’t extend coverage for cryptocurrency-related losses, as it primarily applies to tangible, physical assets.

On October 24th, it was confirmed by the Fourth Circuit Appeals Court that Lemonade Insurance had made the right decision in rejecting homeowner Ali Sedaghatpour’s $170,000 insurance claim related to losses from a cryptocurrency fraud scheme.

As a crypto investor, I found myself ensnared in a fraudulent scheme when I unwittingly transferred $170,000 to APYHarvest back in December 2021. Little did I know that this entity, later exposed as a scam investment firm by the Central Bank of Ireland, had given me access to a crypto wallet key. I believed I had safeguarded it in my home safe, but alas, it was their deception all along. This lawsuit I initiated was the beginning of my quest for justice in this unfortunate situation.

Later on, when Sedaghatpour found out that his cryptocurrency assets were depleted, he turned to his homeowner’s insurance for protection since it covers personal property loss worth up to $160,000.

In contrast, Lemonade Insurance argued that although a hard drive wallet is physically present, the cryptocurrency itself remains digital and is not eligible for coverage under “direct physical damage or loss.

In their decision, the court found that Sedaghatpour’s insurance policy only applied to instances of physical damage or destruction of real property. Since cryptocurrencies are non-physical and were digitally stolen, this incident fell outside the scope of the policy’s protection.

In a subsequent attempt to reconsider the verdict, Sedaghatpour took the case before a higher court – the appeals court. Here, a panel of three judges affirmed the initial ruling made by the Virginia District Court.

“We have reviewed the record and find no reversible error,” the appellate judges noted.

The court cited Virginia law, noting that “direct physical loss” requires a loss that involves “material destruction or harm.” Since cryptocurrency cannot suffer physical damage, they concluded Sedaghatpour’s homeowner’s policy was inapplicable. 

This decision might establish a pattern for upcoming disputes over crypto-related losses, as it makes clear that traditional home insurance often does not cover digital property.

The court’s ruling emphasizes the boundaries of typical insurance plans, but simultaneously points to an increasing need for customized cryptocurrency insurance solutions. The field of digital asset insurance remains in its infancy, gradually expanding as underwriters examine potential coverages for the distinct perils linked to digital assets.

Presently, companies like Evertas and Relm Insurance provide specialized policies that safeguard cryptocurrency exchanges, custodians, and select individual wallets from potential losses due to hacking, theft, or operational errors. Yet, these services are primarily designed for institutional clients. The range of personal crypto insurance options is still quite limited.

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2024-10-25 13:23