According to Cointelegraph, a homeowner's attempt to sue his insurer for failing to cover a $170,000 loss due to a crypto scam has been dismissed by a United States appeals court. The Fourth Circuit Appeals Court ruled on October 24 that the Virginia District Court judge did not err in dismissing Ali Sedaghatpour's breach of contract claim against Lemonade Insurance. The homeowner's policy only covered 'direct physical loss' of property, which did not apply to the digital theft of cryptocurrency.
Sedaghatpour had sued Lemonade Insurance in 2022, arguing that the insurer should have covered his $170,000 loss under his homeowner's policy. This case was notable as it involved a crypto user attempting to classify cryptocurrency as personal property under a home insurance policy. However, the appellate judges clarified that under Virginia law, direct physical loss requires 'present or impending material destruction or material harm.' They concluded that the digital theft of digital currency does not constitute a direct physical loss, and thus, no coverage for Sedaghatpour's loss of cryptocurrency was available under that section of the policy.
The appeals court panel further noted that Lemonade Insurance had already fulfilled its obligation under 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.' The three-judge panel affirmed the federal court's order to dismiss Sedaghatpour's lawsuit.
Sedaghatpour's lawsuit, filed in March 2022, claimed that he had transferred $170,000 to APYHarvest in December 2021, which turned out to be a scam entity posing as an investment firm. According to the complaint, APYHarvest provided Sedaghatpour with a key to a crypto wallet containing the transferred funds, which he stored in a safe at his home. He later discovered that the wallet had been emptied, leading him to accuse APYHarvest of stealing and selling his cryptocurrency. Sedaghatpour filed a claim with Lemonade Insurance, asserting that the loss should be covered under his policy, which provided coverage for personal property up to $160,000.
In February 2023, a federal court judge dismissed Sedaghatpour's lawsuit, prompting him to appeal the decision a month later. Lemonade Insurance argued that while a crypto hardware cold wallet is a tangible object, the data it contains does not possess tangible properties and therefore cannot be considered a 'direct physical loss' of property. The insurer maintained that cryptocurrency remains intangible regardless of its storage method. Neither Sedaghatpour nor Lemonade Insurance's lawyer immediately responded to requests for comment.
