US Court Rules Home Insurance Policies Do Not Cover Cryptocurrency Losses

A U.S. appeals court has ruled that home insurance policies do not extend to cryptocurrency losses, 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 $170,000 claim for funds lost in a crypto scam. The ruling stems from a lawsuit filed by Sedaghatpour after he fell victim to an investment fraud, having transferred $170,000 to APYHarvest in December 2021. This entity was later identified as a scam by the Central Bank of Ireland, which had provided him access to a crypto wallet key that he stored in a safe at home.

Upon 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. However, Lemonade Insurance argued that, while a cold hardware wallet might be tangible, cryptocurrency itself is digital and cannot be covered under “direct physical loss.”

The court concurred, ruling that Sedaghatpour’s policy only covered physical damage or destruction of tangible assets, making it inapplicable to the intangible nature of cryptocurrency theft.

Following the initial ruling in Virginia District Court, Sedaghatpour appealed the decision. The three-judge appellate panel confirmed the lower court's judgment, stating, “We have reviewed the record and find no reversible error.”

Citing Virginia law, the court noted that “direct physical loss” necessitates “material destruction or harm.” Since cryptocurrency cannot undergo physical damage, the judges concluded that Sedaghatpour’s homeowner’s policy did not apply.

This ruling may establish a precedent for future cases involving cryptocurrency losses, clarifying that standard home insurance policies do not cover digital assets.

While the court's decision highlights the limitations of traditional insurance, it also points to a growing demand for specialized crypto insurance products. The market for digital asset insurance is still developing, as insurers begin to explore coverage options for the unique risks associated with cryptocurrency.

Some providers, such as Evertas and Relm Insurance, offer policies designed to protect exchanges, custodians, and specific individual wallet holdings against hacking, theft, and operational issues. However, these offerings primarily target institutional clients, leaving personal crypto insurance options largely limited.