U.S. Appeals Court Rejects Homeowner’s $170,000 Crypto Scam Insurance Claim

The United States appeals court has ruled against a homeowner’s plea to hold his insurer accountable for a $170,000 loss resulting from a cryptocurrency scam.

A three-judge panel at the Fourth Circuit Appeals Court upheld the decision to dismiss the case, stating that there was no basis for the homeowner’s claim.

The court’s ruling, issued on October 24, affirmed the judgment of a Virginia District Court judge who had previously determined that Ali Sedaghatpour had no grounds for a breach of contract lawsuit against Lemonade Insurance.

Homeowner’s Policy Covered Losses Related to ‘Physical Loss’

The judge concluded that Sedaghatpour’s homeowner’s policy solely covered losses related to “direct physical loss” of property, a criteria that did not encompass his crypto scam incident.

The legal dispute stemmed from Sedaghatpour’s lawsuit against Lemonade Insurance in 2022, wherein he argued that the insurer was obligated to reimburse him for the $170,000 in cryptocurrency that was fraudulently obtained from him.

This case was notable for its attempt to establish crypto as personal property under a home insurance policy, compelling the insurer to compensate for losses incurred due to crypto scams.

COURT RULES AGAINST $170K CRYPTO THEFT INSURANCE CLAIM

A U.S. appeals court dropped the hammer on Ali Sedaghatpour, who tried to get Lemonade Insurance to cover his $170K loss from a crypto scam.

The court said his homeowner's policy is all about “direct physical loss,” and… pic.twitter.com/lkYgDjkn4X

— Mario Nawfal’s Roundtable (@RoundtableSpace) October 25, 2024

According to the appellate judges, the interpretation of “direct physical loss” in Virginia law necessitates a tangible and imminent material harm or destruction.

Given this definition, the court ruled that the digital theft of cryptocurrency did not meet the criteria for “direct physical loss,” rendering Sedaghatpour ineligible for coverage under his policy for the crypto losses.

Furthermore, the panel said that Lemonade Insurance had fulfilled its obligations by providing coverage for losses resulting from the theft or unauthorized use of electronic fund transfer cards or access devices, up to a specified amount.

Sedaghatpour Transfers $170,000 to APYHarvest

Sedaghatpour’s legal battle originated from a transaction in December 2021, where he transferred $170,000 to APYHarvest, an entity later identified as a fraudulent investment firm by the Central Bank of Ireland.

Despite receiving a crypto wallet key from APYHarvest, Sedaghatpour discovered that his crypto holdings had been depleted, leading to the accusation of theft against the scam entity.

Following the dismissal of his initial lawsuit in February 2023, Sedaghatpour appealed the decision in March of the same year.

In response, Lemonade Insurance argued that the intangible nature of cryptocurrency, despite being stored in a physical cold wallet, did not constitute a “direct physical loss” of property.

Phishing attacks remain a major issue for crypto users, resulting in substantial losses.

In September alone, more than 10,000 individuals lost over $46 million to such scams, as reported by Scam Sniffer, a Web3 anti-scam platform.

The platform revealed that 10,805 victims suffered losses amounting to $46.7 million from various crypto phishing scams.

In the third quarter of 2024, over $127 million in crypto assets were stolen, with Ether wallets being the prime targets in these phishing attacks.