U.S. Appeals Court Rules Against Homeowner’s Attempt to Claim $170K Crypto Scam Loss

On October 24, the Fourth Circuit Appeals Court upheld a ruling denying a homeowner’s insurance claim for a $170,000 loss to a crypto scam. The homeowner, Ali Sedaghatpour, sought coverage from Lemonade Insurance after transferring $170,000 worth of crypto to APYHarvest, a fraudulent investment entity.

Sedaghatpour argued that his home insurance policy should cover the stolen cryptocurrency as personal property. However, the court sided with Lemonade, ruling that crypto scam losses don’t qualify as “direct physical loss,” a key requirement under Virginia law.

Home Insurance Doesn’t Cover Crypto Scam, Court Says

Sedaghatpour’s lawsuit, first filed in 2022, was unusual in that it attempted to push the boundaries of what constitutes personal property within the context of crypto under a traditional homeowner’s policy.

Despite his appeal, the court maintained that Lemonade Insurance had met its contractual obligations, which provide up to $500 coverage for electronic fund theft under specific conditions, a fraction of Sedaghatpour’s claim.

Defining “Direct Physical Loss” in the Digital Era

The case hinged on the definition of “direct physical loss.” In this context, the appeals court determined that Virginia law interprets physical loss as requiring material damage or harm to physical property. While Sedaghatpour contended that crypto should be protected under personal property provisions, the court clarified that digital currency lacks the tangible characteristics necessary to qualify for this kind of coverage.

The court further pointed out that while Sedaghatpour stored his crypto wallet key physically in his home, that detail alone didn’t render the loss a “physical” one.

Lemonade Insurance argued that while the wallet key itself might be tangible, the data it holds and the assets it represents do not have physical substance. The court agreed, stating, “Regardless of the manner of storage, cryptocurrency remains intangible.”

Future Implications

Sedaghatpour’s crypto scam loss case raises questions about how digital assets are classified and insured.

With crypto scam cases on the rise, the ruling could set a precedent, signaling to consumers that standard homeowner policies may not cover digital asset losses. For the insurance industry, the case underscores the need to address this gap, potentially encouraging specialized policies that account for crypto’s unique, intangible nature.