US court confirms home insurance will not cover crypto losses

An appeals court in the United States has ruled that home insurance does not cover cryptocurrency losses, emphasizing that policies only apply to physical property.

On October 24, the Fourth Circuit Court of Appeals affirmed that Lemonade Insurance was correct in denying homeowner Ali Sedaghatpour’s claim for $170,000 in funds lost as a result of a crypto scam.

The decision follows a lawsuit filed by Sedaghatpour after falling victim to a crypto investment scam following a $170,000 transfer to APYHarvest in December 2021. The organisation, which was later confirmed to be a fraudulent investment company by the Central Bank of Ireland, had granted him access. to the crypto wallet key that he claimed he kept in a safe at home.

When he later discovered his crypto assets had been drained, Sedaghatpour sought coverage under his homeowner’s policy, which insures personal property losses up to $160,000.

In response, Lemonade Insurance argued that while the cold hardware wallet may be tangible, the cryptocurrency remains digital and cannot be covered under “direct physical loss.”

The court agreed, ruling that Sedaghatpour’s policy was limited to inflicting physical harm or destruction of material possessions. Since cryptocurrency is intangible, digital theft is excluded.

Sedaghatpour filed an appeal, moving the case to the current hearing in the appellate court; where the three-judge panel upheld the Virginia District Court’s original decision.

“We reviewed the record and found no reversible error,” the appellate judges said.

Citing Virginia law, the court stated that “direct physical loss” requires a loss that involves “pecuniary destruction or harm.” They concluded that Sedaghatpour’s host policy was unenforceable since the cryptocurrency could not be subject to physical damage.

This decision could set a precedent for future cases involving crypto losses by clarifying that standard home insurance policies may not apply to digital assets.

While the court’s decision highlights the limits of standard insurance policies, it also highlights the growing demand for specialized crypto insurance products. Digital asset insurance is still a relatively new market and is slowly evolving as insurers explore coverage options for the unique risks associated with digital assets.

Some providers, such as Evertas and Relm Insurance, currently offer policies specifically designed to protect exchanges, custodians, and certain individual wallet holdings against losses from hacking, theft, and operational disruptions. However, these offers are mostly offered exclusively to corporate customers and personal crypto insurance options remain limited.