A United States appeals court has ruled that home insurance does not cover cryptocurrency losses, stressing that policies only apply to physical property.

On Oct. 24, the Fourth Circuit Appeals Court affirmed that Lemonade Insurance was correct in denying homeowner Ali Sedaghatpour’s $170,000 claim for funds lost to a crypto scam.

The ruling follows a lawsuit that Sedaghatpour initially filed after falling victim to a crypto investment fraud, following his $170,000 transfer to APYHarvest in December 2021. The entity, later confirmed by the Central Bank of Ireland as a scam investment firm, had provided him with access to a crypto wallet key, which he claimed to have stored in his home safe.

When he later discovered his crypto holdings had been emptied, Sedaghatpour sought coverage under his homeowner’s policy, which insures personal property losses up to $160,000.

In response, Lemonade Insurance contended that while a cold hardware wallet might be tangible, cryptocurrency remains digital and cannot be covered under “direct physical loss.” 

The court agreed, ruling that Sedaghatpour’s policy was limited to physical harm or destruction of tangible assets. As cryptocurrency is intangible, the digital theft did not qualify for coverage.

Sedaghatpour pursued an appeal, bringing the case to its current hearing in the appeals court where the three-judge panel upheld the Virginia District Court’s original decision.

“We have reviewed the record and find no reversible error,” the appellate judges noted.

The court cited Virginia law, noting that “direct physical loss” requires a loss that involves “material destruction or harm.” Since cryptocurrency cannot suffer physical damage, they concluded Sedaghatpour’s homeowner’s policy was inapplicable. 

This ruling could set a precedent for future cases involving crypto losses, clarifying that standard home insurance policies may not apply to digital assets.

While the court’s decision underscores the limits of standard insurance policies, it also highlights the growing demand for specialized crypto insurance products. Digital assets insurance is still a relatively new market, slowly developing as insurers explore coverage options for the unique risks associated with digital assets.

Some providers, such as Evertas and Relm Insurance, currently offer policies tailored to protect exchanges, custodians, and certain individual wallet holdings against losses from hacking, theft, and operational mishaps. However, these offerings are mostly tailored for institutional clients and personal crypto insurance options remain limited.