A recent ruling from the U.S. Fourth Circuit Appeals Court rejected a homeowner’s attempt to claim $170,000 in losses from a cryptocurrency scam under his insurance policy. A three-judge panel upheld a Virginia District Court’s earlier decision, determining that the homeowner, Ali Sedaghatpour, had no grounds to hold Lemonade Insurance liable for the scam-related loss.
Insurance Coverage Limited to ‘Physical Loss’
The court ruled on October 24 that Sedaghatpour’s policy only covered “direct physical loss” of property, which did not extend to losses incurred from crypto scams. Sedaghatpour initially filed the lawsuit in 2022, contending that Lemonade Insurance should compensate him for the crypto assets lost in the fraudulent transaction. However, the court clarified that Virginia law defines “direct physical loss” as requiring tangible, material harm—a condition that digital cryptocurrency losses do not meet.
The appellate court further emphasized that Lemonade Insurance had fulfilled its obligations by covering theft or unauthorized use of electronic fund transfer cards or access devices, up to the specified policy limit.
Scam Involved APYHarvest Fraudulent Scheme
The case traces back to a December 2021 transaction in which Sedaghatpour transferred $170,000 to APYHarvest, later exposed as a fraudulent entity by the Central Bank of Ireland. Despite receiving a crypto wallet key, Sedaghatpour discovered his funds were gone, leading him to claim theft against the scammer.
After his initial case was dismissed in February 2023, Sedaghatpour appealed, arguing that crypto assets stored in a physical cold wallet should be viewed as “physical property.” Lemonade countered that cryptocurrency’s intangible nature doesn’t meet the “direct physical loss” standard.
Phishing Scams in Crypto Continue to Rise
Crypto-related scams remain prevalent, with phishing attacks causing substantial losses. In September 2024 alone, anti-scam platform Scam Sniffer reported over 10,805 phishing victims losing approximately $46.7 million. Throughout Q3 2024, phishing scams and other attacks resulted in over $127 million in stolen crypto assets, with Ether wallets being particularly targeted.
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