Advisen Front Page News
- Wednesday, August 31, 2022
No coverage for stolen cryptocurrency under homeowners policy, federal court rules
Advisen
No coverage for stolen cryptocurrency under homeowners policy, federal court rules
By Erin Ayers, Advisen
A California federal court recently ruled against claimants seeking coverage for stolen cryptocurrency under a homeowners policy, finding that there can be no direct physical loss to “intangible” property.
In Heidi Burt et al. v. Travelers Commercial Insurance Company, the plaintiffs inherited $339,000 in cryptocurrency after the November 2020 death of their father, Harry Burt. In April 2021, hackers infiltrated Harry Burt’s Coinbase account and stole the digital property.
Harry Burt held a homeowners policy with Travelers at the time of the crypto theft that provided $555,800 in coverage for “personal property.” His children filed a claim for the lost funds and Travelers hired a claims investigator. However, the Burts stated that they also spent significant time investigating the loss on their own.
Travelers cited the policy’s “currency” and “securities” exclusions, but did not provide a final determination on which exclusion applied to the loss. The Burts sued for declaratory judgment, breach of contract, alleging bad faith and violations of California’s Unfair Competition Law and Travelers moved to dismiss.
The U.S. District Court for the Northern District of California agreed with the insurer, finding no possibility of coverage under the policy.
“Plaintiffs’ loss of their cryptocurrency is not, as a matter of law, a direct physical loss,” wrote Judge Jacqueline Scott Corley in the order. “They do not, and cannot, allege facts that give rise to a plausible inference that cryptocurrency ‘has a material existence, formed out of tangible matter, and is perceptible to the sense of touch’ … “That Plaintiffs lost control of the cryptocurrency is not direct physical loss as a matter of California law.”
COVID business interruption litigation even came into play in the Court’s decision, with Judge Corley citing the 2021 case of Mudpie v. Travelers in affirming that “direct physical loss” requires physical alteration of the property and excludes “alleged losses that are intangible or incorporeal.”
The Court added, “Plaintiffs’ insistence that ‘permanent dispossession’ of property may be an alternative to the ‘physical alteration’ requirement fares no better.”
In finding no cover under the policy, Judge Corley also dismissed the breach of contract and bad faith claims, but acknowledged that bad faith can occur even where no coverage is available. The judge allowed the plaintiffs leave to amend their complaint.
