The 4th Circuit Court of Appeals has affirmed a district court’s ruling that a homeowner’s insurance policy does not cover the theft of cryptocurrency because it is not a “direct physical loss” as required by the policy. The individual held the crypto in a third-party hot storage digital wallet provided by APYHarvest and subsequently found that all of it (over $170,000) was stolen. He put in a claim on his homeowner’s policy (from Lemonade Insurance), which was denied because the insurer said the policy does not cover loss of cryptocurrency (although the insurer did pay out $500 under a different provision of the policy).

Definitions of cryptocurrencies supported the decision of the lower court to rule that there was no direct physical loss. For example, the IRS defines cryptocurrency as “virtual currency that uses cryptography to secure transactions that are digitally recorded on a distributed ledger, such as a blockchain.” Based on these definitions, the court concluded that crypto has no physical or tangible existence, so there was no direct physical loss.

The case is Sedaghatpour v. Lemonade Ins. Co. (II), 2024 U.S. App. LEXIS 26924, and the opinion as well as a case digest and full opinion of the district court case are on the BVLaw platform.