The theft of greater than $170,000 value of cryptocurrency wasn’t a “direct bodily loss” coated by a house owner’s insurance coverage coverage, in response to the Jap District of Virginia.
Choose T.S. Ellis III wasn’t stunned that the events couldn’t cite any Virginia circumstances instantly on level. As an alternative, he cited a latest opinion from a California federal court docket that such insurance policies don’t cowl lack of cryptocurrency.
“[I]t is obvious that cryptocurrency, by its nature, exists solely nearly or digitally and has no bodily or tangible existence,” Ellis defined. “It follows, subsequently, that the coverage doesn’t cowl loss or theft of cryptocurrency as a result of the loss or theft doesn’t represent a ‘direct bodily loss’ to plaintiff’s property.”
Discovering not one of the plaintiff’s arguments persuasive on the contrary, the choose granted the insurance coverage firm’s movement to dismiss.
The choice is Sedaghatpour v. Lemonade Insurance coverage Firm (VLW 023-3-047).
‘Scorching pockets’
Between October and December 2021, Ali Sedaghatpour alleged that he transferred 11 cryptocurrencies into digital storage in a “scorching pockets” referred to as APYHarvest.
APYHarvest is bodily situated in Eire and England, however accounts are accessible to customers on-line.
When Sedaghatpour logged in to his scorching pockets on Dec. 31, 2021, he found that APYHarvest had moved his cryptocurrency to an organization based mostly within the Cayman Islands known as Binance.com. Binance informed Sedaghatpour that his cryptocurrency had been bought to an unidentified third-party for $170,424.67.
In January 2022, Sedaghatpour filed a declare underneath his home-owner’s insurance coverage coverage with Lemonade Insurance coverage Firm. Lemonade denied the declare, saying the coverage protects “‘stuff,’ or property, solely when that property is ‘broken instantly’ by one of many ‘particular losses’ contemplated within the coverage.”
Lemonade additionally mentioned that, even when cryptocurrency theft had been coated by the coverage, protection was restricted to $500. After receiving a $500 verify, Sedaghatpour exhausted Lemonade’s inside appeals course of to no avail.
He then sued Lemonade for $159,500 — the coverage’s $160,000 restrict much less the $500 cost.
Lemonade moved to dismiss.
‘Direct bodily loss’
Ellis mentioned the coverage at challenge insured “towards ‘direct bodily loss’ to, plaintiff’s private property ‘brought on by any of the next perils,’ certainly one of which is ‘theft.’”
Additional, the coverage “makes clear that it covers ‘private property owned or utilized by [plaintiff] whereas it’s anyplace on this planet,’” the choose famous.
Given the scope of protection, Ellis moved on to the principal challenge of whether or not theft of cryptocurrency is a “direct bodily loss” throughout the coverage’s protection.
Whereas Sedaghatpour didn’t provide a definition of cryptocurrency, dictionaries and governmental companies, together with the IRS, outline it as “current wholly nearly or digitally.” As such, the lack of theft of cryptocurrency doesn’t represent a direct “bodily” loss.
Ellis mentioned, given cryptocurrency’s newness, it wasn’t stunning that neither get together cited any Virginia caselaw on the topic.
“Right here, there is just one technique to perceive how the ‘direct bodily loss’ language applies to cryptocurrency; as a result of, as mentioned, plaintiff’s cryptocurrency doesn’t exist tangibly, however quite exists solely nearly, there isn’t a ambiguity that plaintiff suffered no ‘direct bodily loss.’ And the truth that plaintiff disagrees with the plain which means of ‘direct bodily loss,’ as interpreted by courts making use of Virginia regulation, doesn’t create a real ambiguity.”
— U.S. District Choose T.S. Ellis III
However the choose discovered instructive a latest opinion from the Northern District of California that held the theft of cryptocurrency didn’t represent a “direct bodily loss.”
That holding was in line with 2003’s NMS Servs. Inc. v. Hartford, a 4th U.S. Circuit Court docket of Appeals determination making use of Virginia regulation the place a hacker deleted laptop recordsdata essential to function the plaintiff’s community.
The Fourth Circuit concluded that protection existed for 2 causes: the plaintiff’s methods had been bodily broken by the deletion of recordsdata and people recordsdata had been saved on the plaintiff’s laptop.
Ellis mentioned these “two essential and obligatory details” are lacking on this case. Sedaghatpour neither alleged that the theft of his cryptocurrency broken tangible property nor that the cryptocurrency was saved on his laptop.
“Thus, even when there have been some ‘direct bodily loss,’ that loss occurred to APYHarvest’s servers, to not the plaintiff’s laptop or server,” the choose defined. “Accordingly, the Amended Criticism right here alleges no details demonstrating that plaintiff suffered a ‘direct bodily loss’ when his wholly-virtual cryptocurrency was stolen, a requisite situation of recovering underneath the insurance coverage coverage.”
No ambiguity
Sedaghatpour’s arguments to dissuade the choose from his conclusion had been unpersuasive.
First, he contended that the time period “bodily” was ambiguous and thus must be construed towards Lemonade. However Ellis mentioned there was no real ambiguity in Lemonade’s use of the time period “direct bodily loss.”
“Right here, there is just one technique to perceive how the ‘direct bodily loss’ language applies to cryptocurrency; as a result of, as mentioned supra, plaintiff’s cryptocurrency doesn’t exist tangibly, however quite exists solely nearly, there isn’t a ambiguity that plaintiff suffered no ‘direct bodily loss,’” Ellis mentioned. “And the truth that plaintiff disagrees with the plain which means of ‘direct bodily loss,’ as interpreted by courts making use of Virginia regulation, doesn’t create a real ambiguity.”
Sedaghatpour additionally claimed Lemonade’s latest inclusion of cryptocurrency exclusions in its insurance policies created a unfavourable inference that the dearth of such language in his coverage proved that cryptocurrency was coated.
Ellis disagreed.
“Right here, the phrases used within the Coverage are clear; theft is roofed provided that a theft features a ‘direct bodily loss,’ which didn’t happen right here as a result of cryptocurrency exists wholly nearly,” he mentioned. “And the truth that defendant clarified in subsequent insurance policies that ‘digital foreign money’ will not be coated is simply that: a clarification.”
Ellis dismissed Sedaghatpour’s criticism.