In a latest Fourth Circuit Courtroom of Appeals resolution that leaves me scratching my head, Lemonade Insurance coverage Firm efficiently argued that cryptocurrency isn’t coated underneath their house owner’s coverage as a result of it’s not “tangible property.” 1 The irony is {that a} tech-forward insurance coverage firm named after a refreshing drink takes such a bitter place on digital belongings. I give their inventive and successful attorneys a toast—however they solely beat a professional se policyholder who didn’t carry to the courtroom’s consideration that different insurance coverage corporations are issuing property insurance coverage insurance policies for bitcoins, blockchain, stablecoins and different types of digital and cryptocurrency.
The Previous Guard Leads the Method
In the meantime, throughout the pond, the venerable Lloyd’s of London – an establishment that started making certain picket ships within the 1600s – has embraced the digital age. Lloyd’s syndicates, together with Atrium and TMK, now provide complete property insurance coverage protection for cryptocurrency theft, together with safety for each cold and warm wallets. These insurance policies even function dynamic limits that regulate with cryptocurrency worth fluctuations, exhibiting outstanding adaptability for an establishment that predates electrical energy. Clearly, had this truth been delivered to the eye of the federal judges, they could not have written that these digital currencies usually are not tangible property since Lloyds is issuing protection for these underneath property insurance coverage insurance policies!
The Candy and Bitter of Insurance coverage Innovation—The Distinction is Placing
Lloyd’s, with its centuries-old custom of quill pens and maritime insurance coverage, acknowledges the truth of digital belongings as property worthy of safety. In the meantime, Lemonade, a startup digitech American firm that prides itself on Synthetic Intelligence to make claims determinations and digital underwriting automation, allowed its intelligent insurance coverage attorneys to persuade a federal district courtroom decide and the Fourth Circuit Courtroom of Appeals that when somebody steals your Bitcoin, it’s probably not a “direct bodily loss” as a result of you possibly can’t contact it.
I recommend that the Covid case legislation denying protection is now wrongly overreaching into common arguments in opposition to property harm protection instances by limiting what “tangible property” consists of and what “bodily loss” means within the context of instances outdoors of Covid-related losses. This must cease, and this case is an instance of why.
A Bitter Style for Policyholders
The Fourth Circuit’s resolution in Sedaghatpour v. Lemonade Insurance coverage Firm, affirming a flawed district courtroom opinion, 2 represents a regarding precedent for cryptocurrency holders. The courtroom and Lemonade might have correctly restricted protection to a measly $500 underneath an digital fund switch provision. The wrongful a part of the choice is that billions in digital belongings stay doubtlessly unprotected underneath conventional property insurance coverage insurance policies, discovering that bitcoins and different types of digital foreign money usually are not tangible belongings or property.
Maybe it’s time for American insurers to take a web page from Lloyd’s playbook and acknowledge that property within the twenty first century isn’t restricted to issues you possibly can drop in your foot. Till then, cryptocurrency house owners would possibly wish to look throughout the Atlantic for his or her insurance coverage wants – the place, apparently, the “outdated canine” are higher at studying new methods.
One lesson for policyholders and their counsel is to know the insurance coverage product and get your heads out of insurance coverage case legislation. Judges usually are not discovered insurance coverage brokers or property claims adjusters. My outdated good friend, the late Gene Anderson of the superb Anderson Kil policyholder agency, at all times stated that “a health care provider doesn’t learn to follow medication from studying medical malpractice books. Why ought to an insurance coverage lawyer study insurance coverage from merely studying insurance coverage case legislation?” These phrases are very true given the plain wrongful conclusion by the Fourth Circuit affirming the district courtroom’s resolution that cryptocurrency isn’t “tangible property.” That argument is just not acknowledged within the property insurance coverage market.
Bear in mind, when insurance coverage corporations attempt to squeeze their method out of protection, typically you’ll want to make lemonade out of their lemons. Simply don’t anticipate Lemonade Insurance coverage to cowl it if somebody steals your digital recipe or cash.
Thought For The Day
Innovation distinguishes between a frontrunner and a follower.
—Steve Jobs
1 Sedaghatpour v. Lemonade Ins. Co., No. 23-1237 (4th Cir. Oct. 24, 2024).
2 Sedaghatpour v. Lemonade Ins. Co., No. 1:22-cv-355 (E.D. Vir. Feb. 6, 2023).