Court declares homeowners policy doesn't cover theft of cryptocurrency

On December 31, 2021, the plaintiff found that all of his cryptocurrency had been stolen from his APYHarvest hot wallet, which was valued at $170,424.67 at the time. On January 3, 2022, the plaintiff filed a claim under his homeowners policy for the policy limit of $160,000. Lemonade Insurance Company denied the claim on the grounds that the plaintiff’s property was not damaged directly by one of the specific losses named in the policy. Lemonade Insurance Company paid $500 to the plaintiff based on the sublimit for loss resulting from theft or unauthorized use of an electronic fund transfer card or access device used for deposit.

The plaintiff filed an Amended Complaint with the Circuit Court of Fairfax County listing the eleven types of cryptocurrency that were stolen and alleged that APYHarvest itself was the thief. The defendant filed a motion to dismiss the complaint, claiming that the policy didn’t cover the loss of cryptocurrency and, even if it did, it would be limited to a sublimit of $500.

Motion to dismiss

The case came down to the interpretation of the policy and whether the loss fell within the scope of coverage provided by the policy. The policy insured against “direct physical loss” to the plaintiff’s personal property while it is anywhere in the world caused by the named perils, one of which was theft. The court found multiple definitions of cryptocurrency and concluded that it exists only virtually and has no physical existence. The court determined that the theft of cryptocurrency does not constitute a direct physical loss to the plaintiff’s personal property.

The plaintiff claimed that the term “physical” was ambiguous and, as a result, its interpretation should go against the insurer who drafted the policy. While it is true that courts will side against the insurer when terms are ambiguous, the court found there was no ambiguity in the term direct physical loss and its relation to cryptocurrency.

The plaintiff also claimed that, since Lemonade Insurance Company changed their policy to now specifically exclude loss of electronic currency, it meant that since his policy didn’t include that exclusion, then his cryptocurrency was covered. However, precedent from the Supreme Court of Virginia stated that a policy must be interpreted based on the policy itself, and changes to a policy provision did not mean previous versions were ambiguous.

The court concluded there was no ambiguity in the term direct physical loss as it relates to cryptocurrency and granted the defendant’s Motion to Dismiss. The plaintiff appealed the decision to the 4th Circuit Court of Appeals, who reviewed the case and affirmed the decision.

Editor’s Note: The plaintiff made many arguments for why the loss of cryptocurrency should be covered under his policy, but ultimately came up short. Courts will side against the insurer when terms are ambiguous since they hold the power in drafting the policy, but in this case, the court found no ambiguity in the term “direct physical loss.” Further, a policy is not ambiguous simply because the insurer later amended it. The insurer specifically excluding cryptocurrency in current policies does not mean previous policies provide coverage for it.

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