U.S. Appeals Court rejected a homeowner’s lawsuit against his insurer over a $170,000 crypto scam loss. The three-judge panel ruled there was no error in the lower court’s decision to dismiss the case.
On Oct. 24, the Fourth Circuit Court of Appeals upheld the Virginia District Court’s ruling that Ali Sedaghatpour had no valid breach of contract claim against Lemonade Insurance. The court found that his homeowner’s policy only covered “direct physical loss” of property.
Sedaghatpour filed his lawsuit against Lemonade Insurance in 2022, seeking $170,000 for crypto stolen through a scam. His argument centered on the claim that the stolen crypto should qualify as personal property under his homeowner’s insurance.
The court disagreed, stating that under Virginia law, “direct physical loss” requires “present or impending material destruction or material harm.” The judges ruled that the digital theft of cryptocurrency did not meet this standard, making Sedaghatpour ineligible for coverage under that section of the policy (see about US Regulators Intent on Exposing Cryptoasset Mixing Services & Scam Crypto Exchanges).
The panel noted that Lemonade Insurance had already fulfilled its obligation under a separate policy provision. This provision allows for up to $500 in coverage for theft or unauthorized use of an electronic fund transfer card or similar access device.
Sedaghatpour criticized the ruling, stating the court failed to explain why “digital theft” doesn’t qualify as a physical loss. He also argued that his policy covered other forms of “digital property” and pointed to state laws requiring coverage for “direct loss” of personal property.
The dispute traces back to December 2021, when Sedaghatpour transferred $170,000 to APYHarvest, a scam posing as an investment firm, according to the Central Bank of Ireland. Sedaghatpour claimed APYHarvest provided him with a key to a crypto wallet that stored his funds, which he kept in a safe at his home (see FATF Updates Guidance on Virtual Crypto Assets).
Later, he discovered the wallet had been emptied, with APYHarvest allegedly stealing and selling his crypto. In response, Sedaghatpour filed a claim with Lemonade Insurance, asserting that the loss should be covered under his $160,000 personal property policy.
A federal judge dismissed Sedaghatpour’s case in February 2023, leading to his appeal in March. Lemonade Insurance argued before the appeals court that, while a physical crypto wallet is a tangible object, the data inside it does not hold tangible properties. As a result, the theft of the cryptocurrency could not be considered a “direct physical loss.”
The insurer further argued that cryptocurrency remains intangible, regardless of its method of storage. The appellate court agreed, affirming the lower court’s dismissal of Sedaghatpour’s lawsuit.
Lemonade Insurance did not respond to requests for comment.
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