By Michael Menapace, Esq., Wiggin and Dana LLP
After 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 instructed by the SEC) or property (as instructed by the IRS) and the way which may impression insurance coverage protection beneath a typical householders 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 steerage on the problem, and few conditions have been analogous. Lately, 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
Practically 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 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 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 injury.
Much like the business property insurance coverage insurance policies at situation within the COVID-19 claims, a typical householders 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 beneath his householders 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 householders’ forex 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”
Wanting 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 anticipate different courts across the nation will come to the identical conclusion when the problem of the way 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 forex” shouldn’t be lined.
These current court docket instances verify that people proudly owning cryptocurrency ought to take additional care to guard their digital property and mustn’t depend on commonplace language in householders 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 Regulation on the Quinnipiac College College of Regulation, and a Fellow of the American Faculty of Protection Counsel.