A United States appeals court has upheld a lower court’s decision to reject a lawsuit against Lemonade Insurance, brought by a Virginia homeowner seeking coverage for a $170,000 loss from a cryptocurrency scam.
The Fourth Circuit Court of Appeals ruled on October 24 that Lemonade Insurance had no obligation to cover Ali Sedaghatpour’s loss because his homeowner’s policy only applied to “direct physical loss” of property.
Sedaghatpour initially filed the lawsuit in March 2022 after transferring $170,000 to APYHarvest, a scam claiming to be a legitimate investment firm. According to him, APYHarvest provided him with a key to a crypto wallet where his funds were supposedly held, but he later discovered the wallet had been emptied. He noted this is what led him to file a claim with Lemonade Insurance, which he argued should cover the loss under a policy insuring up to $160,000 for personal property.
After a district court dismissed the lawsuit in February 2023, Sedaghatpour appealed, but the appeals court affirmed the original decision that Lemonade Insurance was not liable for his crypto scam loss.
The judges agreed with the insurance company’s argument that while a crypto hardware wallet is a physical item, the cryptocurrency data it contains does not have tangible qualities and, therefore, does not constitute a “direct physical loss.” They cited Virginia law, which requires physical damage or material destruction for such a claim to be valid.
The appeals court ruled that the insurance company fulfilled part of its policy obligations by compensating Sedaghatpour with $500 under a clause that covers unauthorized electronic fund transfers.
This ruling coincides with a recent initiative between the United States and Nigeria to combat cryptocurrency-related crimes. Through a newly established Bilateral Liaison Group, both countries aim to strengthen their abilities to investigate and prosecute cybercrimes linked to the misuse of digital assets, as confirmed by the U.S. Department of State.
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