When a family entrusted their investment money to Bernard Madoff, they started getting financial statements from his business showing them falsely inflated amounts in their accounts to make them think that they were doing well, and perhaps should consider investing more. But the money wasn’t really there. The investment offered was actually just one big Ponzi scheme, and their money was lost. Later, they sought to file insurance claims, as many others from Florida and elsewhere who lost money did.
An appeals court has now clarified that such insurance claims can only seek to recover the money actually lost, rather than the fictitious losses stemming from the imaginary profits that Madoff claimed. That represented money which was never actually there, but was “lost” on paper when the entire scheme collapsed.
Losses by an entity called Jacobson Family Investments, therefore, are being limited to $100 million from primary and excess insurance carriers. They cannot try to recover any portion of the imaginary profits, no matter how honest their belief in Madoff may have been. You cannot lose what you never actually had, the appeals court reasoned.
The appeals court also held that each of the entities involved had to be treated as individual claims, rather than being amalgamated into a single claim. As a result, a $3 million deductible would apply to the claims of each entity, barring those with losses under the deductible amount from recovering anything at all. The insurance companies had hoped that the claims would be combined, because the total payout for these claims would have been lower.
Madoff, who was tried and convicted of defrauding investors, currently resides in prison and received a sentence that is supposed to last up to 150 years.
Source: Thomson Reuters News & Insight, “Madoff victims can file insurance claims only for actual losses: appeals court,” Joseph Ax, Dec. 11, 2012Share