If there was a listing of individually initiated financial disasters, the depredations of Ponzi-schemer Bernard Madoff might rank at the top, but opinions may differ on how much of an insurance catastrophe he has created.

Mr. Madoff–who was arrested in December 2008 and finally sent to prison for 150 years this June–is credited with ripping off clients of his Bernard L. Madoff Investment Securities LLC to the tune of between $10 billion and $20 billion.

Generally, the official insurance industry definition requirement for a catastrophe is a covered loss of $25 million or more, and Loretta Worters, an Insurance Information Institute representative, said that “we don't have anything like that at this point” when it comes to Madoff-related losses.

Still, given the ongoing legal search by plaintiff attorneys for deep pockets with insurance coverage, the “no catastrophe” label could be premature.

Grabbing a handle on how much insured damage Mr. Madoff may have created at this point without a crystal ball is almost as difficult as the court-appointed trustee's search for all of Mr. Madoff and his wife's assets–homes in France, Palm Beach, Fla., East Hampton, N.Y., foreign bank accounts, furs, jewels, watches, art, etc.

In March, Aon Benfield's Actuarial and Enterprise Risk Management practice developed a $1.8 billion estimate of direct insurance losses that could be paid out on behalf of asset management firms, banks and other firms being sued in connection to Madoff-related claims.

Back then, Aon's Stephen Mildenhall, who heads the firm's actuarial and enterprise risk management practice, said he believed that part of the fallout from the Madoff scheme would be heightened underwriting for the professional liability coverage class.

And Sherrie Savett, an attorney with Berger & Montague, P.C. in Philadelphia, said the Madoff plaintiffs' lawyers would chase after solvent hedge funds with Madoff assets, pursuing the legal theory that those funds did not do sufficient due diligence.

Accountants that audited the hedge funds were pointed out by Ms. Savett as another potential target for litigation.

“How could they have done a proper audit of the assets of a hedge fund if assets weren't really there? We now know that Madoff didn't even trade for the last 13 years, so there was a real lack of due diligence on the part of the hedge funds and their auditors,” she said.

However, there has been at least one federal court ruling that could make recovery from the funds difficult, according to John C. Coffee Jr., a professor at Columbia University's law school.

Cases may also be brought against bank custodians entrusted with checking to make sure the assets Mr. Madoff claimed were there, Ms. Savett advised.

Meanwhile, for the many victims stung by Mr. Madoff, who dealt with him through brokerage accounts and feeder funds, there is a $500,000 recovery limit from the Securities Investor Protection Corp., which could also prompt suits to collect additional recovery funds from insured players.

For some well-to-do victims who had the right homeowners policies, there have been recoveries. Mark Herr, a representative for the Private Client Group of Chartis, said the American International Group unit had paid off “hundreds of eligible policyholders who suffered Madoff-related losses.”

One claim that the firm did not pay involved a couple who, by the insurer's reckoning, had received more money from Mr. Madoff through withdrawals from their account than they had deposited.

Recently, the latest insurance sector to be identified as a target for claims is the group that provides fiduciary liability coverage for employee benefit pension plans.

In November, attorneys speaking at an insurance conference predicted that with fewer hurdles to face in bringing lawsuits against employee benefit plan fiduciaries than against directors and officers, more victims of Ponzi schemes will file pension liability suits.

Madoff plaintiff legal actions based on Employee Retirement Income Security Act (ERISA) law open up “another pocket” for the recovery of investment losses, according to Kenneth Rubinstein, a partner with Nelson, Kinder, Mosseau & Saturley in Manchester, N.H.

Special Reports /

#7: Madoff Might Be Scourge Of Insurers

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