AIG vs. Madoff clients: Who's scamming whom?

In a story that seems designed to give financial pundits a burst of near-apocalyptic joy, the two most scandal-ridden entities of the past year have come together in a brilliant flash of moral turpitude and slick legal wrangling. In one corner, there's Bernie Madoff, the greatest Ponzi schemer of all time; in the other, there's AIG, the most irresponsible insurer every to receive a massive government bailout. Standing in the middle are Robert and Harlene Horowitz, Madoff customers who want AIG to eat the $8.5 million that they lost to Big Bern.

The Horowitzes' suit, which was filed on Wednesday in the U.S. District Court in Manhattan, alleges that AIG issued them an insurance policy that covered their Madoff investments. At first flush, this lawsuit appears to be a desperate attempt to squeeze a few pennies out of AIG over what must be a misinterpretation. After all, it's hard to imagine an insurer who would be reckless enough to write a blanket policy, sight-unseen, that protects its holders against all financial scams, with no limitations.