By Michael Menapace, Esq., Wiggin and Dana LLP
Once I first wrote right here about insurance coverage protection associated to cryptocurrency theft, I mentioned whether or not these digital belongings had been securities (as steered by the SEC) or property (as steered by the IRS) and the way that may influence insurance coverage protection underneath a typical owners coverage.
I additionally mentioned whether or not the complete coverage limits for generic property had been accessible for the theft of the belongings or a coverage sublimit for cash would apply.
At the moment, courts had offered little steering on the difficulty, and few conditions had been analogous. Lately, nevertheless, steering has emerged, together with from a line of circumstances that may not seem to have a lot relevance at first look.
Wrestling over “bodily” loss
Practically each appellate court docket within the nation has wrestled with the difficulty of whether or not financial losses skilled by companies because of the COVID-19 pandemic had been lined by their business property insurance coverage insurance policies. A business property coverage sometimes covers the “bodily” lack of or damages to property. Insurers uniformly denied these enterprise interruption claims and hundreds of companies sued. Courts constantly rejected the companies’ claims for protection as a result of the COVID-19 virus doesn’t change the construction of the insured property, and purely financial losses usually are not “bodily” loss or injury.
Much like the business property insurance coverage insurance policies at problem within the COVID-19 claims, a typical owners coverage covers the direct bodily lack of lined private property.
In 2021, Ali Sedaghatpour had roughly $170,000 of his cryptocurrency stolen and made a declare underneath his owners insurance coverage coverage. The insurer paid him the $500 restrict for the theft of digital funds, however denied protection for the rest of the loss. The home-owner sued and the federal district court docket for the East District of Virginia dominated in favor of the insurer. Lately, the US Court docket of Appeals for the Fourth Circuit affirmed the choice in favor of the insurer. The case was titled Sedaghatpour v. Lemonade Insurance coverage Co. (Case No. 23-1237).
The court docket dominated that the digital theft of the owners’ foreign money didn’t quantity to direct “bodily” loss and the insurer owed the home-owner nothing greater than the $500 it had already paid. The appellate court docket didn’t disturb different findings by the trial court docket – together with the decrease court docket’s quotation to dictionary definitions of cryptocurrency, which state that cryptocurrency exists “wholly nearly”
Trying forward
Within the Sedaghatpour case, the courts had been making use of Virginia legislation; nevertheless, given the uniform improvement of “bodily loss” all through the nation within the COVID-19 context, I count on different courts across the nation will come to the identical conclusion when the difficulty of learn how to deal with digital belongings comes earlier than them. I likewise observe that some insurers have revised their coverage language to state expressly that the lack of “digital foreign money” is just not lined.
These latest court docket circumstances verify that people proudly owning cryptocurrency ought to take further care to guard their digital belongings and shouldn’t depend on customary language in owners insurance coverage insurance policies to hedge towards theft.
Michael Menapace is a Triple-I Non-Resident Scholar, Co-chair of the Insurance coverage Follow Group at Wiggin and Dana LLP, a professor of Insurance coverage Regulation on the Quinnipiac College College of Regulation, and a Fellow of the American School of Protection Counsel.
