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 property have been securities (as prompt by the SEC) or property (as prompt by the IRS) and the way which may affect insurance coverage protection underneath a typical owners coverage.
I additionally mentioned whether or not the total coverage limits for generic property have been obtainable for the theft of the property or a coverage sublimit for cash would apply.
At the moment, courts had supplied little steering on the difficulty, and few conditions have been analogous. Lately, nonetheless, steering has emerged, together with from a line of instances that might not seem to have a lot relevance at first look.
Wrestling over “bodily” loss
Almost each appellate courtroom within the nation has wrestled with the difficulty of whether or not financial losses skilled by companies on account of the COVID-19 pandemic have been coated by their industrial property insurance coverage insurance policies. A industrial property coverage sometimes covers the “bodily” lack of or damages to property. Insurers uniformly denied these enterprise interruption claims and 1000’s of companies sued. Courts persistently 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 will not be “bodily” loss or harm.
Just like the industrial property insurance coverage insurance policies at subject within the COVID-19 claims, a typical owners coverage covers the direct bodily lack of coated 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 courtroom 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 courtroom 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 courtroom didn’t disturb different findings by the trial courtroom – together with the decrease courtroom’s quotation to dictionary definitions of cryptocurrency, which state that cryptocurrency exists “wholly nearly”
Trying forward
Within the Sedaghatpour case, the courts have been making use of Virginia legislation; nonetheless, given the uniform improvement of “bodily loss” all through the nation within the COVID-19 context, I anticipate different courts across the nation will come to the identical conclusion when the difficulty of easy methods to deal with digital property 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” just isn’t coated.
These latest courtroom instances affirm that people proudly owning cryptocurrency ought to take further care to guard their digital property and mustn’t depend on customary language in owners insurance coverage insurance policies to hedge in opposition to 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 Legislation on the Quinnipiac College College of Legislation, and a Fellow of the American School of Protection Counsel.
