I presided over the trial of this action on April 17-20, 24-26, 2012. Over that period of time, nine individuals testified and trial counsel moved into evidence a substantial number of documents. Counsel submitted post-trial briefs on June 11, 2012.

Defendants, Nine Thirty FEF Investments, LLC ("FEF") and Nine Thirty VC Investments, LLC ("VC") (FEF and VC collectively referred to as the "insureds"), are private limited liability companies formed for investment purposes for their owners, which are charitable organizations and families. Nine Thirty Capital Management, LLC ("Nine Thirty Capital") provides FEF and VC with investment advice as well as recommendations for employing investment managers and advisors. During the relevant period of time, Stuart J. Rabin ("Rabin") was Nine Thirty Capital's Chief Executive Officer, and J. Robert Small ("Small") was its Chief Financial Officer. Rabin and Small were also CEO and CFO of the Jacobson Family Investment ("JFI"), respectively.

In order to understand how the parties began their insurance relationship, and the evolution of the insurance coverage herein, a brief historical review is in order. In 2001, JFI through its insurance broker, Frank Crystal & Company ("Frank Crystal"), obtained from Vigilant Insurance Company ("Vigilant") a Financial Institution Bond (the "Vigilant bond"), which included an Outside Investment Advisor coverage endorsement. While the Vigilant bond contained a broker exclusion, an endorsement to the bond specifically provided that the broker exclusion did not apply to the Outside Investment Advisor coverage. In 2002, Vigilant issued a renewal bond to JFI on the same terms. In 2003, Vigilant discontinued providing Outside Investment Advisor coverage to JFI. JFI then obtained replacement coverage from National Union Insurance Company ("National Union") in 2003. National Union's bond contained the same Outside Investment Advisor coverage, and the broker exclusion, Exclusion (x) (the "National Union bond"). National Union eventually ceased providing Outside Investment Advisor coverage to JFI affiliates managed by Nine Thirty Capital, such as Nine Thirty LLC Investments ("Nine Thirty LLC"). Thereafter, Nine Thirty LLC obtained insurance coverage from Quanta Indemnity Company ("Quanta Indemnity") similar to the coverage JFI had with National Union (the "Quanta bond").

Defendant FEF sought and obtained from Quanta Indemnity a Financial Institution Bond modeled after the Quanta bond (the "FEF Quanta bond"). The FEF Quanta bond provided Outside Investment Advisor coverage, evidenced by Rider No.9. Thereafter, FEF sought and obtained insurance coverage from plaintiff, United States Fire Insurance Company ("U.S. Fire"), based on the FEF Quanta bond. U.S. Fire issued FEF a Financial Institution Bond (the "FEF U.S. Fire bond"), which was in effect during the relevant period of time.

Defendant VC separately sought and obtained from U.S. Fire the same Financial Institution Bond issued to FEF (the "VC U.S. Fire bond"). It too was in effect during the relevant period of [*3]time.

Both the FEF U.S. Fire bond and the VC U.S. Fire bond contain the following language in the "EXCLUSIONS" section:

Both also contain "Rider 9", the "OUTSIDE INVESTMENT ADVISOR RIDER", which provides, in relevant part:

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The insureds' decision to enter into a business relationship with Bernard L. Madoff ("Madoff") and his firm, Bernard L. Madoff Investment Securities LLC ("Madoff Securities") was rather straightforward. Rabin testified that JFI family members and the Madoff family had a social relationship. Some time in 1997 or early 1998, Rabin testified at trial that a suggestion was made to him to have the insureds' assets placed with Madoff and Madoff Securities because he had a reputation of being very credible and successful. Madoff's investment strategy was to utilize a "split-strike conversion strategy" to make investment decisions. In that regard, the arrangement was for Madoff to implement his strategy by having Madoff Securities execute the trades he dictated. The fee for providing this investment advice would be included in the 4-cent brokerage commission Madoff Securities would charge on each trade. The JFI entities invested with Madoff and his company. Later, FEF and VC, at Rabin's recommendation, opened investment accounts with Madoff Securities. Over the next several years, the investments performed well, until December 11, 2008, when the United States Securities and Exchange Commission filed a complaint against Madoff and Madoff Securities in the United States District Court for the Southern District of New York charging them with perpetrating a multi-billion dollar Ponzi scheme in violation of the federal securities laws. In March 2009, the federal government commenced criminal proceedings against Madoff, and charged him with eleven felony counts arising out of his Ponzi scheme. On March 12, 2009, Madoff pleaded guilty to all charges.

On or about June 9, 2009, the insureds submitted claims to U.S. Fire under both bonds seeking coverage for their losses related to the Madoff debacle. Approximately four months later, in a letter, dated October 28, 2009, U.S. Fire, through its counsel, denied coverage. The letter provided, in relevant part:

This action arises out of U.S. Fire's denial of the insureds' claims pursuant to the two financial institution bonds issued by U.S. Fire to FEF and VC. FEF and VC's claims are based [*5]on losses both allegedly sustained, respectively, at the hands of Madoff and Madoff Securities in the course of their perpetration and operation of their infamous Ponzi scheme. FEF's claimed losses total $9,257,811.71; VC's claimed losses total $5,561,493.01.

U.S. Fire and the insureds moved for summary judgment. In a decision and order, entered June 22, 2011, Supreme Court (Justice Richard B. Lowe, III) denied their motions. In that regard, as is relevant to this trial, Justice Lowe found that "Rider 9 defines Outside Investment Advisor as any firm, corporation, or individual named in the Schedule of Rider 9 and an employee, officer, or partner of such Outside Investment Advisor", that "Madoff Securities is listed as an Outside Investment Advisor in the Schedule", and that "[t]here is no dispute that Bernard Madoff is included under the definition of Outside Investment Advisor". As to whether FEF's and VC's losses arising out of Madoff's dishonest acts are covered pursuant to the bonds, Justice Lowe held:

The language of Rider 9 has a definite and precise meaning, and thus, is unambiguous. In its clear and plain language, Rider 9 limits coverage to losses as a result of dishonest acts as an Outside Investment Advisor. As stated above, Rider 9 defines an "Outside Investment Advisor" as any firm, corporation, or individual named in the Schedule, including an employee, officer, or partner of such firm, corporation, or individual, and Madoff Securities is clearly listed as one of the 25 Outside Investment Advisors in the Schedule. Rider 9 does not, as U.S. Fire asserts, require that those entities listed must only be investment advisors; rather, the Rider limits the losses covered to those occurring out of the duties of an Outside Investment Advisor. If losses were suffered as a result of dishonest acts committed by Madoff in his duty as an Outside Investment Advisor, those losses are covered.

Madoff is clearly included as an Outside Investment Advisor on Rider 9; however, he was admittedly a registered securities broker. Although Exclusion (x) does not cover losses as a result of dishonest acts by a securities broker, it is not clear, when read with Rider 9, whether losses from dishonest acts by Madoff, acting as an Outside Investment Advisor. The issue is whether [*6]these losses, if any, are precluded by Exclusion (x) because Madoff is also a registered securities broker. This ambiguity presents a question of fact which cannot be resolved on these motions for summary judgment.

U.S. Fire urges me to revisit Justice Lowe's decision by taking the position that it is an interlocutory order, and that I have discretion to modify it. I decline to do so. To begin, Justice Lowe's decision is law of the case. Further, the proper procedural vehicle for that review would have been for U.S. Fire to move for reargument (CPLR 2221). It did not. U.S. Fire's other option was to appeal Justice Lowe's decision and order, which it did, and that appeal is still pending (CPLR 5512). Indeed, were I to conduct such an unwarranted review and reconsideration, I would be engaging in an impermissible appellate review of an order of a Justice of coordinate jurisdiction. The cases cited and relied upon by U.S. Fire to support its application are factually distinguishable given that those cases involved a subsequent reconsideration by the same Justice or Appellate Court that rendered the original decision and order —- not a different Justice, as in this case.

Next, the issue of whether Exclusion (x) can apply to Rider 9 has been previously determined by Justice Lowe. His decision and order is clear — Rider 9 provides coverage with respect to the claims. Justice Lowe's finding that the remaining issue is "whether these losses, if any, are precluded by Exclusion (x) because Madoff is also a registered securities broker", indicates that Exclusion (x) is to be considered when determining Rider 9 coverage, and that whether it is triggered to exclude coverage is to be determined at trial. Given this analysis, the insureds' reliance on the doctrine of efficient proximate cause is misplaced because there is no competing proximate causes for the claimed losses.

Indisputedly, during the relevant time period with respect to the controversy herein, Madoff and Madoff Securities were registered securities brokers. U.S. Fire takes the position that this fact alone is sufficient to trigger Exclusion (x). The critical question then is whether that fact satisfies the conditions set forth in Exclusion (x) so as to exclude coverage under Rider 9.

As noted, supra, Exclusion (x) excludes coverage for:

To begin, the claims file had no commentary or reference to Exclusion (x). Trillo gave the following explanation for such absence:

A lot of time there is no coverage wording in this at all until you make a final determination, maybe you put that letter in and the claims decision at the end.

MR. KEELEY: Mr. Novak, please let him finish.

MR. NOVAK: He is not being responsive.

MR. KEELEY: He's got to let him finish.

Nonetheless, the absence of any commentary in the claims file regarding Exclusion (x) is ostensibly understandable when I consider the testimony of Kush, the senior claims person that [*8]both Tibak and Trillo consulted, that U.S. Fire did not have the expertise to handle these claims:

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So prior to the —- this particular claim coming in the door, I had actually given them a handful of cases that I had been directly involved in, and just asked them to read them and become acquainted with those claims so they could understand how those claims were handled, how the coverages applied.

And so that was all right around this time. So when this claim came in, I thought it was most appropriate that I assign it to them because that's where I wanted those claims to be handled over the long term.

In that same vein, Tibak's testimony was as follows:

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Trillo testified that he too did not have experience with these kinds of claims:

The inference that I draw from the above testimony is that the reason the claims file did not have any reference to Exclusion (x) is because of Tibak's, Trillo's and Kush's uncertainty with respect to the policy coverage and exclusion provisions. Thus, I find their unified position concerning Exclusion (x) to be questionable.

Another basis for me to doubt their unified interpretation is their singular reliance on the proof of loss. All three testified that the key, critical factor in interpreting Exclusion (x) as it applied to Rider 9 was the insureds' proof of loss (Trial Tr. at pp. 485, 506, 525, 553, 555, 574-576, 657, 692). As to the purpose of the proof of loss, Tibak testified as follows:

So, sure, was it a long shot, maybe, yeah. Were we being cautious, we definitely were, but was it possible that they would submit something that would establish that Madoff was an employee and perhaps voiding Exclusion X.

Contrary to Tibak's, Trillo's and Kush's testimony, the proof of loss is not a "roadmap" for the coverage investigation concerning the applicability of Exclusion (x) (Trillo Trial Tr. at p. 610). First, a careful review of the proof of loss [*9]prepared by the insureds demonstrates that it makes no mention of Madoff and Madoff Securities as a securities brokers. That simple fact is only mentioned in the federal criminal information, annexed to the proof of loss, and is stated merely in a descriptive context. Essentially, the proof of loss is a roadmap to nowhere.

Second, by June of 2009, the documentation clearly demonstrated that Madoff was not an employee, and that he was a registered securities broker, thus purportedly triggering Exclusion (x) under U.S. Fire's interpretation. Yet, Kush explained that the reason why U.S. Fire took four months to issue the disclaimer letter was because they were waiting for additional information (Trial Tr. at pp. 691-692). Tibak and Trillo's trial testimony is not to the contrary. That explanation, however, is not credible in light of Trillo's testimony that this information was financial in nature (Trial Tr. at p. 613 ["At that time I think there were still outstanding documentation, I think there were banking records; there were several things that we still didn't receive. But I think at that point it was as good as we were going to get."]). As Trillo stated:

Again, this was my first claim, and it happens to be tied in with Bernard Madoff and everything that was going on in 2008, so it was more of an issue of, you know, we weren't confident to make that call at that time. And I think there was something expressed by myself, and I can guarantee Eric and Paul weren't —- again, we weren't sure because this was new to us, especially new to me.

The straw that breaks the proverbial camel's back is U.S. Fire's own October 28, 2009 disclaimer letter. In setting forth its position concerning the interplay between Rider 9 and Exclusion (x), U.S. Fire advised the insureds, in relevant part, the following:

During trial, I noted a problem with this disclaimer letter as written (Trial Tr. at pp. 497-501). Specifically, the disclaimer letter clearly indicates that coverage under Rider 9 is not available because Madoff Securities was "acting as a broker." I then noted that by using the term "similarly", without any other qualification, Exclusion (x) excluded coverage for that same reason, namely, that Exclusion (x) excluded coverage because Madoff and Madoff Securities were "acting" as brokers, and not merely due to the fact that they were registered securities brokers (Id.).

Responding to this obvious dilemma, U.S. Fire's counsel urged me to focus on the original complaint accompanying the disclaimer letter because that pleading "made it very clear what we were saying" (Trial Tr. at p. 498). In that regard, the original complaint alleges that "FEF's and VC's losses resulted directly or indirectly from dishonest and fraudulent acts committed by Madoff and Madoff Securities, non-Employees who are securities brokers", and that "[a]s a result, Exclusion (x) [*11]excludes coverage for FEF and VC's claimed losses" (Dx E, Original Complaint, ¶ 41). Counsel essentially argued that I should use the complaint to amplify and supplement the disclaimer letter. I made no ruling at the time. I now find that argument unavailing.

As noted during colloquy with counsel, a complaint is nothing more than a pleading setting forth various allegations that need to be proved. As such, a pleading is generally amplified and supplemented by evidence, either documentary or otherwise —- not, as counsel suggests, the other way around. Tellingly, U.S. Fire puts forth no argument with respect to the disclaimer letter in its post-trial brief. Apparently, it is abandoning its earlier position.

Nonetheless, an opportunity was given to U.S. Fire to provide an explanation at trial. Tibak gave the following testimony:

Mr. Novak is arguing on behalf of Defendants that my last sentence there means that in order for Exclusion X to apply Mr. Madoff actually had to be acting as a broker. Was that how you read that?

THE COURT:What was the last sentence?

THE WITNESS:The last thing I said was no coverage because he was a broker-dealer.

What was your understanding of this paragraph of my letter, denial letter? What did you intend for me to be explaining to the insureds?

To begin, I find counsel's characterization that the phrase "acting as a broker" coupled with the term "similarly" in the disclaimer letter was merely a "mistake" to be nonsensical, particularly given U.S. Fire's very substantial exposure with regard to these claims. If, in fact, counsel prepared this disclaimer letter contemporaneously with the original complaint, as he asserts, then as I noted at trial, "it would have been simple as a matter of fact to say take exactly the same sentence that you have in the complaint ... and just stick it in here ... then we would have been avoiding all this problem at this juncture but for the fact that its not there gives me or at least gives Mr. Novack the opportunity the doors open the jar as to what exactly what Exclusion X means" (Trial Tr. at p. 500).

In any event, as their testimony, supra, indicates, Tibak and Trillo both testified that they reviewed and approved the disclaimer letter and the original complaint. Tibak testified that U.S. Fire's position for Exclusion (x) was never that Madoff and Madoff Securities had to be "acting" as securities brokers, but that they merely had to be securities brokers. Trillo testified that the disputed sentence was intended to convey to the insured that there was no coverage under Exclusion (x) because Madoff was a securities broker. Indeed, Trillo explained that he thought "being" a securities broker was the same as "acting" as one (Trial Tr. at pp. 627-628). Kush's testimony virtually mirrors Tibak's and Trillo's.

Such a single-minded view of the meaning of Exclusion (x) is simply incredible when considered in light of the following statements from Trillo:

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Such a glaring and unmistakable difference between the language setting forth U.S. Fire's position in the disclaimer letter and the original complaint should have been obvious. To simply explain that "being" and "acting" were the same is simply not credible (Trial Tr. at p. 628). The following fact is clear —- U.S. Fire charged these individuals with the responsibility of investigating and reviewing the claims over the course of approximately ten months in which they purportedly gathered information and documentation to formulate a determination. The substantial exposure of these claims to U.S. Fire was very real. Indeed, Tibak testified that "[t]his wasn't a $10,000 claim" and that "[t]his one was pretty big and we wanted to make sure we got it right" (Trial Tr. at p. 510). To now claim that the disputed sentence says something else is disingenuous. Were I to accept this explanation, I would essentially be ignoring clear and plain English (Trial Tr. at p. 500).

Accordingly, based on the foregoing, I find that two interpretations for Exclusion (x) were considered, namely, (1) that Exclusion (x) requires a showing that Madoff and Madoff Securities were merely registered securities brokers, or (2) that Madoff and Madoff Securities were "acting" as brokers. Given that two interpretations were considered, the issue that must be resolved is which one controls.

An insurer desiring to exclude any risk must do so in clear and unmistakable terms and a vague exclusion should not be permitted to exclude coverage (Sincoff v Liberty Mut. Fire Ins. Co., 11 NY2d 386, 391 [1962]). In that regard, the exclusionary terms are to be accorded a strict and narrow construction, and are not to be extended by interpretation or implication. Any policy exclusion must be strictly construed against the insurer, and an insurer may negate coverage only if the exclusion is stated in clear and unmistakable language demonstrating that it applies in the particular case and is subject to no other reasonable interpretation (Cone v Nationwide Mut. Fire Ins. Co., 75 NY2d 747, 749 [1989]). In other words, when the issue is the [*13]appropriate construction or interpretation of the terms of an exclusionary clause, the insurer must establish that its construction or interpretation of the clause is the only proper construction (Nussbaum Diamonds, LLC v Hanover Ins. Co., 64 AD3d 488, 491 [1st Dept 2009]). The burden of satisfying this test is on the insurer (Continental Cas. Co. v Rapid-American Corp., 80 NY2d 640, 654 [1993]). If the insurer fails to submit extrinsic evidence that resolves the ambiguity in its favor, the proper interpretation is a matter of law and the ambiguity is resolved against the drafter of the contract, the insurer (Kenavan v Empire Blue Cross & Blue Shield, 248 AD2d 42, 47 [1st Dept 1998]).

With these legal principles as guideposts to resolving this issue, I make the following findings. I find that U.S. Fire failed to establish by credible testimonial or documentary evidence that its construction and interpretation of Exclusion (x) is the only proper meaning for that provision. As such, failing to resolve the ambiguity in its favor, I am compelled, as a matter of law, to hold that Exclusion (x) excludes coverage under Rider 9 if Madoff and Madoff Securities were "acting" as securities brokers. The question that remains is whether Madoff and Madoff Securities were acting as securities brokers.

U.S. Fire has argued that the insureds' submission of Securities Investor Protection Corporation ("SIPC") claims is somehow inconsistent with the contention that the insureds' losses did not result from Madoff and Madoff Securities acting as their broker (Trial Tr. pp. 763-764). There is no inconsistency. SIPC payments are made pursuant to a statutory scheme to protect the "customers" of insolvent registered brokers. The only thing that a SIPC claimant must show —- and all that the insureds asserted —- was that they were "customers" of an insolvent registered securities broker. The statutory definition of "customer" includes any person who has deposited cash with the debtor securities broker for purchasing securities. The insureds did so when they sent the money to the Madoff Securities Chase account. The insureds had no reason to allege, and never did allege, in their SIPC claims that their losses resulted from Madoff and Madoff Securities acting as a securities broker, and the insureds never disavowed their view that their losses stemmed from Madoff's and Madoff Securities' investment advisory fraud (Px 63, Px 64).

U.S. Fire next argues that Madoff and Madoff Securities were acting as securities brokers as a result of the following undisputed facts: Madoff and Madoff Securities did act as the insureds' securities brokers at least in entering into securities agreements with them, in accepting their monies in order to execute trades for their benefit and/or returning such monies to them when they made withdrawal requests, and in issuing to the [*14]insureds Account Information Verifications, trade tickets, monthly brokerage statements and annual IRS tax forms reflecting trades conducted by a broker.

The insureds argue that this activity is insufficient to prove that Madoff and Madoff Securities were "acting" as securities brokers. They point to the clear evidence that Madoff and Madoff Securities perpetrated a sophisticated Ponzi scheme that duped them and hundreds of other investors. In that regard, Madoff and Madoff Securities were able to further the illusion of actual brokerage activities by creating and sending to FEF and VC fictitious trade confirmations and bogus monthly brokerage account statements from Madoff Securities showing ostensibly deposits and withdrawals for that month, and purporting to show the transactions executed each month, as well as dividends earned. These brokerage statements for the separate managed accounts for FEF and VC were completely fictitious (Dx V, p. 27; Small Trial Tr. at p. 357-359; Trillo Trial Tr. at p. 563-564, 567-568). Indeed, Madoff and Madoff Securities were not rogue brokers churning brokerage accounts to generate exorbitant fees; he was doing nothing more than running an elaborate confidence game —- he was a con man.

At trial, Trillo conceded that: there were no brokerage accounts ever set up for the defendants, the funds sent to the Chase account were never sent to a brokerage account but rather were stolen by Madoff, there were never any trades made by Madoff for the insureds, and there were no brokerage activities conducted by Madoff that caused the insureds' losses (Trial Tr. at pp. 563-568). Tibak similarly conceded that there were no securities actually purchased or sold by Madoff for the insureds (Trial Tr. at p. 504).

U.S. Fire asserts that the insureds' argument, that Madoff and Madoff Securities did not really act as securities brokers because they did not actually trade any securities on their behalf, the so-called "imposter defense" as coined by U.S. Fire, is without merit. In making this argument, U.S. Fire relies on the following federal cases: First Ins. Funding Corp. v Federal Ins. Co., 284 F3d 799 (7th Cir 2002), Stanford Univ. Hosp. v Federal Ins. Co., 174 F3d 1077 (9th Cir 1999), The Stop & Shop Cos. v Federal Ins. Co., 136 F3d 71 (1st Cir 1998), Associate Community Bancorp, Inc. v The Travelers Cos., Inc., 2010 US Dist LEXIS 34799 (US Dist Ct, Conn 2010), and Colson Servs. Corp. v Insurance Co. of N. Am., 874 F Supp 65 (US Dist Ct, SD NY 1994). Although these cases are not binding on this Court, I, nonetheless, reviewed them to determine if they provide any guidance in resolving this argument.

To begin, Stanford Univ. Hosp., The Stop & Shop Cos., and Colson Servs. Corp., are factually distinguishable from the case herein. In those cases, the issue was whether the term [*15]"authorized representative" included the wrongdoers. The courts held that it did. Similarly, Associate Community Bancorp, Inc. provides no guidance because in that case the court dismissed the insured's declaratory judgment action based on an insolvency exclusion by finding that because Bernard L. Madoff Investment Securities, LLC was a securities broker and the loss was attributable to its insolvency the loss fell within the scope of the exclusion. Here, there is no dispute that Madoff and Madoff Securities are registered securities brokers and, as such, fall within the purview of Exclusion (x). The issue, here, unlike the issue in those cases, is whether Madoff and Madoff Securities were "acting" as securities brokers so as to trigger the exclusionary language set forth therein.

Although this determination seemingly would preclude First Insurance from recovering its losses under the terms of the bond, it also has submitted that Colesons could not have functioned as an intermediary or finder during the fraudulent transactions. Intermediaries or finders bring two or more parties together for the purpose of conducting business. Because Colesons brought First Insurance together with a fictitious party during the fraudulent transactions, First Insurance posits that Colesons could not have functioned as finder or intermediary during the course of the forgery scheme thereby removing the claim for indemnification from the ambit of Exclusion 3.m.

We cannot accept this contention. The bond places squarely on First Insurance the risk associated with dishonest or fraudulent conduct perpetrated against it by a certain class of entities. In unequivocal terms, Exclusion 3.m states that First Insurance, rather than Federal, must bear losses caused by, among others, First Insurance's agents, intermediaries, finders or other representatives of the same general character. In this case, First Insurance cloaked Colesons with the authority to act as its intermediary, finder or other representative of the same general character. During the fraudulent transactions, First Insurance dealt with Colesons under the apprehension that [*16]Colesons was acting in such a capacity. ... Under the terms of the bond, First Insurance bore the risk of cloaking Colesons with the authority to act as its intermediary, finder or other representative of the same general character. Federal did not agree to indemnify First Insurance for such losses.

First, the relevant facts concerning the relationship between the insured and Colesons is critical, and it is as follows:

And, second, what U.S. Fire omitted from the quoted language from the court's holding, supra, is the following critical passage:

Here, unlike the facts in First Ins. Funding Corp., supra, Rabin testified that Madoff and Madoff Securities had complete, and total discretion without any supervision or oversight from the insureds:

In all such purchases, sales or trades you are authorized to follow the instructions of Bernard L. Madoff in every respect concerning the undersigned's account with you; and he is authorized to act for the undersigned and in the undersigned's behalf in the same manner and with the same force and effect as the undersigned might or could do with respect to such purchases, sales or trades as well as with respect to all other things necessary or incidental to the furtherance or conduct or such purchases, sales or trades. All purchases, sales or trades shall be executed strictly in accordance with the established trading authorization directive.

U.S. Fire's investigation failed to establish that the insureds viewed Madoff and Madoff Securities as "acting" as securities brokers:

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So I walked away from the meeting saying I'm assuming this is going to become clearer or more clear to us when they submit their proof of loss and sort of explain the interplay between the two.

I also have the testimony of Paul S. Dzera, U.S. Fire's expert who it retained to review the Trustee's records to trace the insureds' monies deposited and/or wired into their investment accounts held at Madoff Securities (Trial Tr. at p. 703). In that regard, up until I granted U.S. Fire's application to call Dzera to testify as a rebuttal witness, I precluded the insureds from introducing into evidence Madoff's plea allocution. The following exchange took place with respect to U.S. Fire's application:

THE COURT: The plea allocution; in other words, you mean the plea allocution?

MR. NOVAK: Yes. And I also have brought with me today authorities, I know it's not the time now, that show that the argument —-

THE COURT: Are you prepared to do that? I will —- I'll [*20]change my mind about the plea allocution. It's going to come in as evidence, and you guys can go at this whole thing about the brokerage account at this point.

MR. KEELEY: I don't think it matters.

THE COURT: Well, you'd better be careful as to how you think it matters or not. Good cases fall on such comments. You open that door, it's going to —-

MR. KEELEY: I think I'm fine with it. Let me tell you why we want to keep it out.

THE COURT: You know what? I don't want to hear why you put it out. If you want to put this in, I'm going to let Mr. Novak put into evidence that plea allocution and no holds barred. We'll see where it goes. This case can last another two weeks of: Oh, I have to bring another rebuttal witness in, Judge, because of what happened right now. Be careful, Mr. Keeley, where you want to go with this. I so far kept that plea allocution out, I kept the letters out. If you want to put this witness in, that plea allocution comes in also. We will see where it goes from there.

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MR. KEELEY: Can we have five minutes?

THE COURT: You can have ten minutes since it's a big deal right now, because Mr. Rabin is sitting here, too.

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THE COURT: You can argue as much as you want. That's my ruling for the record. If you call or insist on calling this individual on the stand, I will give Mr. Novak full opportunity to use that plea allocution if he sees fit to cross-examine your witness. And I don't know what he's going to do with it, but I will let him do it. I've kept it out, I've kept it out all this time, but you know what? I'm going to give him this opportunity now if he believes he needs it. You guys have got to decide now. I gave you ten minutes. It's either yes or no.

MR. KEELEY: We'll do it, your Honor.

THE COURT: Okay.

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Now, having heard that testimony by Mr. Madoff, does that indicate to you what he described as consistent with the Ponzi scheme, and the documents you looked at were consistent with a Ponzi scheme?

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In your review of the bank documents did you see that there were monies going from the 703 Chase account to this affiliate?

When you read the Looby declaration you understood that Mr. Looby had examined in great detail the transactions in the 703 Chase account?

AYes.

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"In connection with the purported trades, I caused the fraudulent investment advisory side of my business to charge the investment advisory clients $0.04 per share as a commission. At times in the last few years these commissions were transferred from Chase Manhattan Bank account of the fraudulent investment advisory side of my firm to the account at Bank of New York, which was the [*23]operating account for the legitimate side of Bernard L. Madoff Investment Securities, the proprietary trading and market making side of my firm."

Did you see any evidence of transfers from the Chase Manhattan Bank account to the legitimate side of the business, or that was not what you were given?

Accordingly, it is

ORDERED, ADJUDGED and DECLARED that Exclusion (x) is applicable to Rider 9; and it is further

ORDERED, ADJUDGED and DECLARED that Exclusion (x) is not triggered under the facts of this case, and, as such, coverage pursuant to the FEF U.S. Fire bond and VC U.S. Fire bond is not excluded; and it is further

ORDERED that defendant insureds are entitled to pre-judgment interest from July 1, 2009 ^[FN1] ; and it is further

ORDERED that the amount of damages to be awarded to [*24]defendant insureds shall be respectfully referred to a Judicial Hearing Officer or Special Referee to hear and report on that issue; and it is further

ORDERED that counsel shall serve a copy of this order and judgment, with notice of entry, upon the Clerk of Trial Support, and upon such service the Clerk is respectfully directed to assign this matter to a Judicial Hearing Officer or Special Referee for a hearing on damages.

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HON. JEFFREY K. OING, J.S.C.