The U.S. appeals court ruled that homeowner Ali Sedaghatpour's lawsuit, which sought coverage from Lemonade Insurance for losses due to a crypto scam, was correctly dismissed by the district court.
Claim for Compensation for Cryptocurrency Loss Rejected
Homeowner Ali Sedaghatpour attempted to sue his insurance provider for a $170,000 loss resulting from a crypto scam. However, the appeals court ruled that there was no error in the district court's decision to dismiss the case. The Fourth Circuit Court of Appeals found that Sedaghatpour’s insurance claim was invalid since his policy only covered “direct physical loss” of property.
Lemonade Insurance Not Responsible for Digital Loss
Sedaghatpour argued that personal property insurance should also cover stolen cryptocurrency. This case was one of the few where a crypto user attempted to argue that crypto assets were personal property covered by a homeowners insurance policy.
The court, however, ruled that under Virginia law, “direct physical loss” requires material destruction or damage. Since the digital theft of cryptocurrency does not constitute physical loss, Sedaghatpour could not recover his loss.
Limited Loss Coverage in Insurance Policy
The appeals court noted that Lemonade Insurance’s policy only covered up to $500 for losses from unauthorized use of electronic access devices, but Sedaghatpour’s claimed $170,000 for personal property coverage exceeded this limit.
Case Background
Sedaghatpour sued Lemonade Insurance in March 2022 after transferring $170,000 to a fraudulent entity, APYHarvest, in December 2021, which allegedly exploited his crypto wallet. When he discovered the wallet had been emptied, he accused APYHarvest of stealing his cryptocurrency and filed a lawsuit against Lemonade Insurance for coverage.
Lemonade Insurance's Legal Argument
Lemonade Insurance argued that while a hardware wallet is a tangible object, the data it contains lacks physical properties and cannot be considered a “direct physical loss” of property. Cryptocurrency itself remains an intangible asset, the company added.
Neither Sedaghatpour’s nor Lemonade Insurance’s legal representatives have yet commented on the case.
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