A United States appeals court has confirmed that home insurance policies do not cover losses related to cryptocurrency, emphasizing that such policies only apply to physical property.
On October 24, the Fourth Circuit Appeals Court upheld Lemonade Insurance’s decision to deny homeowner Ali Sedaghatpour’s claim for $170,000 lost in a crypto scam. The ruling stems from a lawsuit Sedaghatpour filed after he fell victim to an investment fraud involving a transfer of $170,000 to APYHarvest in December 2021. This entity, later identified as a scam by the Central Bank of Ireland, provided him access to a crypto wallet key, which he claimed to have kept in his home safe.
After discovering that his crypto holdings had been drained, Sedaghatpour sought coverage under his homeowner’s policy, which insures personal property losses up to $160,000.
Lemonade Insurance argued that while a cold hardware wallet is tangible, cryptocurrency itself is digital and cannot be covered under “direct physical loss.”
The court agreed, ruling that Sedaghatpour’s policy only covers physical damage or destruction of tangible assets. Since cryptocurrency is intangible, the theft did not qualify for coverage.
Following the denial, Sedaghatpour appealed, bringing the case to the appeals court, where a three-judge panel upheld the Virginia District Court’s original ruling. “We have reviewed the record and find no reversible error,” the judges stated.
Citing Virginia law, the court noted that “direct physical loss” involves “material destruction or harm.” As cryptocurrency cannot suffer physical damage, Sedaghatpour’s homeowner’s policy was deemed inapplicable.
This ruling may set a precedent for future cases involving cryptocurrency losses, clarifying that standard home insurance policies generally do not extend to digital assets.
The decision highlights the limitations of traditional insurance coverage while also pointing to the increasing demand for specialized crypto insurance products. The market for digital asset insurance is still emerging, as insurers explore coverage options for the unique risks associated with cryptocurrencies.
Some companies, such as Evertas and Relm Insurance, currently offer tailored policies for exchanges, custodians, and certain individual wallet holdings to protect against losses from hacking, theft, and operational errors. However, these offerings are mainly targeted at institutional clients, leaving personal crypto insurance options relatively scarce.
