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American International Group Inc. does not have to cover insurance claims from two former Bernard Madoff clients who sought compensation for their losses under their homeowner’s policy, a federal appeals court ruled on Wednesday.

The 2nd U.S. Circuit Court of Appeals rejected an appeal from Robert and Harlene Horowitz, who had sought up to $30,000 in coverage under a fraud safeguard provision in their homeowner’s policy with ÌìÃÀÍøÕ¾´«Ã½´«Ã½. The two California residents had sought to make their lawsuit a class action on behalf of other ÌìÃÀÍøÕ¾´«Ã½´«Ã½ policyholders.

The Horowitzes said they lost $8.5 million from their Madoff account when the money manager’s Ponzi scheme was uncovered in 2008, reflecting the amount on their final account statement. But ÌìÃÀÍøÕ¾´«Ã½´«Ã½ denied they suffered any direct loss under the terms of their insurance policy.

The Horowitzes had deposited $4.3 million in their Madoff account over nearly 10 years and withdrawn about $4.5 million over the same period, leaving them with $226,000 more than they invested, according to Wednesday’s ruling. The $8.5 million claim was the indirect loss of potential returns on their initial investment, a scenario that was explicitly excluded from coverage under their policy, ÌìÃÀÍøÕ¾´«Ã½´«Ã½ argued.

In September 2010, U.S. District Judge Paul Crotty in Manhattan agreed with ÌìÃÀÍøÕ¾´«Ã½´«Ã½ and dismissed the lawsuit. The plaintiffs appealed to the 2nd Circuit, which backed Crotty’s ruling.

“The policy expressly excludes coverage for indirect losses – a term that includes the inability to realize income from the money, securities or other property that would have been realized but for the fraud,” the appeals court wrote.

ÌìÃÀÍøÕ¾´«Ã½´«Ã½ could not immediately be reached for comment. A lawyer for the plaintiffs was also not immediately available.

Madoff is serving a 150-year prison sentence after admitting to running what prosecutors called a $65 billion Ponzi scheme.

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