MANHATTAN (CN) – A husband and wife who lost $8.5 million in Bernard Madoff’s Ponzi scheme filed a federal class action against American International Group, saying the insurer refused to honor the fraud-protection provision in their homeowner’s policy. AIG, however, said in a statement that it refused the claim “because they received more money from Madoff through withdrawals from their account than they had deposited.”
Lead plaintiffs Robert and Harlene Horowitz say AIG refused to honor Fraud SafeGuard coverage in polices sold by its subsidiaries AIU Holdings and American International Insurance Co. of California, despite the coverage purporting to insure against losses resulting “directly from fraud, embezzlement or forgery.”
The Horowitzes, of Los Angeles, seek class status on behalf all AIG policyholders who lost money in Madoff’s Ponzi scheme, the biggest in history. The Horowitzes are personally trying to recoup $8.5 million, the amount of their investments as reflected in a statement they received from Bernard L. Madoff Investment Securities in November 2008.
Madoff was arrested on securities fraud charges one month later, and is serving a 150-year sentence in a federal prison in North Carolina. He ran his scam for years through the investment advisory arm of his business, Bernard L. Madoff Investment Securities LLC, promising steady returns to clients he recruited through friends and associates.
In the complaint, the Horowitzes said they have invested with Madoff’s firm through The Horowitz Family Trust since 1997.
In a written statement to The Wall Street Journal, AIG contends the Horowitzes claims are without merit, because the Horowitzes made out fine until Madoff’s Ponzi scheme collapsed.
“Our private client group has paid hundreds of eligible policyholders who suffered Madoff-related losses pursuant to this coverage,” the statement said. “However, in this case, we declined the plaintiffs’ claim because they received more money from Madoff through withdrawals from their account than they had deposited.”
The plaintiffs are represented by Brad Friedman of Milberg LLP in New York.