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 have been securities (as instructed by the SEC) or property (as instructed by the IRS) and the way which may impression insurance coverage protection underneath a typical owners coverage.
I additionally mentioned whether or not the total coverage limits for generic property have been out there for the theft of the belongings or a coverage sublimit for cash would apply.
At the moment, courts had supplied little steerage on the problem, and few conditions have been analogous. In recent times, nevertheless, steerage 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 court docket within the nation has wrestled with the problem of whether or not financial losses skilled by companies because of the COVID-19 pandemic have been coated by their business property insurance coverage insurance policies. A business property coverage usually covers the “bodily” lack of or damages to property. Insurers uniformly denied these enterprise interruption claims and 1000’s 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 will not be “bodily” loss or injury.
Much like the business property insurance coverage insurance policies at difficulty 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 house owner sued and the federal district court docket for the East District of Virginia dominated in favor of the insurer. Just lately, america 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’ forex didn’t quantity to direct “bodily” loss and the insurer owed the house 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 just about”
Trying forward
Within the Sedaghatpour case, the courts have 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 problem of how you can 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 forex” just isn’t coated.
These latest court docket instances affirm that people proudly owning cryptocurrency ought to take further care to guard their digital belongings and mustn’t depend on normal 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 Apply 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.
