In a latest Fourth Circuit Court docket of Appeals determination that leaves me scratching my head, Lemonade Insurance coverage Firm efficiently argued that cryptocurrency isn’t lined beneath their home-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 artistic and profitable attorneys a toast—however they solely beat a professional se policyholder who didn’t carry to the court docket’s consideration that different insurance coverage firms are issuing property insurance coverage insurance policies for bitcoins, blockchain, stablecoins and different types of digital and cryptocurrency.
The Outdated Guard Leads the Means
In the meantime, throughout the pond, the venerable Lloyd’s of London – an establishment that started making certain wood 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 hot wallets. These insurance policies even characteristic dynamic limits that regulate with cryptocurrency worth fluctuations, displaying exceptional 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 aren’t tangible property since Lloyds is issuing protection for these beneath property insurance coverage insurance policies!
The Candy and Bitter of Insurance coverage Innovation—The Distinction is Putting
Lloyd’s, with its centuries-old custom of quill pens and maritime insurance coverage, acknowledges the fact 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 court docket choose and the Fourth Circuit Court docket of Appeals that when somebody steals your Bitcoin, it’s probably not a “direct bodily loss” as a result of you’ll be able to’t contact it.
I recommend that the Covid case legislation denying protection is now wrongly overreaching into basic arguments in opposition to property harm protection circumstances by limiting what “tangible property” consists of and what “bodily loss” means within the context of circumstances 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 determination in Sedaghatpour v. Lemonade Insurance coverage Firm, affirming a flawed district court docket opinion, 2 represents a regarding precedent for cryptocurrency holders. The court docket and Lemonade might have correctly restricted protection to a measly $500 beneath an digital fund switch provision. The wrongful a part of the choice is that billions in digital belongings stay doubtlessly unprotected beneath conventional property insurance coverage insurance policies, discovering that bitcoins and different types of digital foreign money aren’t 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’ll be able to drop in your foot. Till then, cryptocurrency homeowners may need to look throughout the Atlantic for his or her insurance coverage wants – the place, apparently, the “outdated canines” are higher at studying new tips.
One lesson for policyholders and their counsel is to grasp the insurance coverage product and get your heads out of insurance coverage case legislation. Judges aren’t realized insurance coverage brokers or property claims adjusters. My outdated buddy, the late Gene Anderson of the superb Anderson Kil policyholder agency, all the time stated that “a health care provider doesn’t learn to observe medication from studying medical malpractice books. Why ought to an insurance coverage lawyer be taught insurance coverage from merely studying insurance coverage case legislation?” These phrases are very true given the apparent wrongful conclusion by the Fourth Circuit affirming the district court docket’s determination that cryptocurrency just isn’t “tangible property.” That argument is solely not acknowledged within the property insurance coverage market.
Keep in mind, when insurance coverage firms attempt to squeeze their approach out of protection, typically you should 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 pacesetter 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).
