Two investors who allege to have lost money in Bernhard Madoff’s Ponzi scheme have filed a class action complaint against AIG in the U.S. District Court for the Southern District of New York. Horowitz v. AIG Int’l Group, Inc., No. 09-cv-7312 (S.D.N.Y. Aug. 19, 2009). The complaint alleges that AIG is in breach of its coverage obligations under Fraud SafeGuard coverage of the homeowners insurance issued to members of the putative class. The complaint alleges that AIG has denied coverage based on “alleged gains, growth, or appreciation of capital contributions in the Madoff scheme.” Compl. ¶ 24. It is further alleged that AIG has interposed as defenses to coverage exclusions for losses caused by government confiscation and losses arising out of corporate fraud. Id. ¶¶ 30, 32.

The Horowitzes seek to represent a class of “all AIG policyholders in the United States who lost money in connection with Bernhard Madoff’s Ponzi scheme during the time they held an AIG homeowner’s insurance policy with AIG Fraud SafeGuard coverage.” Id. ¶ 35. They assert causes of action for breach of contract, breach of the implied covenant of good faith fair dealing, and unjust enrichment. 

The Madoff account was held in the name of Horowitz Family Trust, which the Complaint alleges has a final account balance of $8.5 million. Id. ¶ 22.

In an August 20 statement, AIG responded that it will cover losses from fraud where the policyholder suffered an actual net loss. Chad Bray, AIG Says Madoff Suit Without Merit, Wall Street Journal, Aug. 20, 2009. AIG stated that it “has paid hundreds of eligible policyholders who have suffered Madoff-related losses pursuant to this coverage [Fraud SafeGuard].” Id. AIG explained that “we declined the plaintiffs’ claims because they received more money from Madoff through withdrawals from their account than they had deposited.” Id.