Lemonade Insurance Wins Again in Crypto Theft Coverage Lawsuit; Amendment Denied
On Wednesday, June 11, 2025, the United States District Court for the Eastern District of Virginia, Alexandria Division denied a motion by plaintiff Ali Sedaghatpour to file a second amended complaint against Lemonade Insurance Company in a breach of contract lawsuit concerning the theft of cryptocurrency valued at over $170,000.
The court, presided over by U.S. District Judge Rossie D. Alston, Jr., ruled that the proposed amendment was futile and did not present a new claim distinct from prior dismissed claims.
The case originated on March 2, 2022, when Sedaghatpour filed a lawsuit in Fairfax County Circuit Court, seeking $159,500 in damages after receiving only $500 from his homeowner’s insurance policy issued by Lemonade Insurance Company. The policy provided up to $160,000 for “direct physical loss” of covered property and $500 for losses from theft or unauthorized use of electronic fund transfer devices. Sedaghatpour claimed the policy covered the theft of his cryptocurrency, which exceeded the policy’s coverage limit.
Lemonade removed the case to federal court on March 30, 2022, and moved to dismiss the complaint. On May 16, 2022, former U.S. District Judge T.S. Ellis, III granted the dismissal, citing Sedaghatpour’s failure to specify the types of stolen cryptocurrencies, the timing and method of the theft, and the location of the theft. Sedaghatpour filed a first amended complaint on June 15, 2022, detailing that eleven types of cryptocurrencies, valued at $170,424.67, were transferred between October 10 and December 30, 2021, to a hot wallet hosted by APYHarvest in London, England, and Dublin, Ireland, and subsequently sold by Binance.com in the Cayman Islands.
On July 6, 2022, Lemonade moved to dismiss the amended complaint, arguing that the policy did not cover cryptocurrency losses or, alternatively, limited coverage to $500. On February 6, 2023, Judge Ellis dismissed the amended complaint, ruling that the theft of cryptocurrency did not constitute a “direct physical loss” under the policy. The Fourth Circuit Court of Appeals affirmed this decision on October 24, 2024, stating that Lemonade fulfilled its obligation by paying $500 under the policy’s electronic fund transfer provision and that digital theft of cryptocurrency did not meet the requirement of “direct physical loss” under Virginia law.
In his motion filed on December 16, 2024, Sedaghatpour sought to file a second amended complaint, reframing his claim to focus on the alleged theft of a “physical” cryptocurrency wallet hosted by APYHarvest, which he claimed was extinguished, preventing access to his cryptocurrency. He sought $160,000, reflecting the value of the stolen cryptocurrency. Lemonade opposed the motion on December 30, 2024, and Sedaghatpour replied on January 8, 2025.
Judge Alston denied the motion, finding that the proposed amendment did not present a new claim and was barred by the law of the case doctrine and the mandate rule, which prevent reconsideration of issues settled by prior rulings.
The court also deemed the amendment futile, as the wallet was described as a web-based, intangible asset, not a physical object, and thus did not meet the policy’s requirement for “direct physical loss.” The court noted that Sedaghatpour’s allegations confirmed the wallet’s digital nature, as it was hosted online, and the loss stemmed from loss of access rather than physical theft.
The court concluded that allowing further amendments was not justified, given Sedaghatpour’s prior opportunities to amend his complaint. Sedaghatpour was informed he could appeal the decision by filing a notice of appeal within 30 days.
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