American Insurance Group is in the headlines again for not honoring the very insurance policies they sold.  AIG’s collapse largely stemmed from their “business” of selling trillions of dollars in credit default swaps – with no capability or reserves to honor the insurance they sold.  Here they go again, with a bit of a twist.  Apparently some homeowner policies were sold with extra benefits of fraud protection, and some Madoff victims are making claims against AIG.  Check out this story that just hit the wires at Marketwatch:

the flailing insurer [AIG] is being sued by two California residents who said their homeowner insurance-fraud protection entitled them to coverage on losses from Madoff’s Ponzi scheme.

The federal lawsuit was filed in Manhattan federal court by Robert and Harlene Horowitz, who said they lost $8.5 million in the Madoff scandal. They filed a class-action suit on behalf of all policy-holders who lost money to Madoff for unspecified damages.

According to the court filing, the Horowitzes alleged that AIG, through its units AIU Holdings and American International Insurance of California, refused to honor AIG Fraud SafeGuard coverage, even though the coverage insures against losses resulting “directly from fraud, embezzlement, or forgery.”

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