Katrina Insurance Case Goes Against Family

A federal judge sided with the insurance industry in a high-profile test case on flood damage from Hurricane Katrina. The couple who filed the case argued that wind caused most of the damage to their home. But the judge ruled the bulk of destruction was caused by flooding, and their policy didn't cover flood damage.

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STEVE INSKEEP, host:

The business news starts with insurance after Katrina, or the lack of it.

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INSKEEP: A Mississippi couple has lost a lawsuit against Nationwide Insurance Company. Their home was badly damaged by Hurricane Katrina. The couple claimed that Nationwide had wrongly denied them coverage for losses suffered in that storm last August. It was the first of several thousand Katrina-related insurance disputes to go to trial.

Here's NPR's Jim Zarroli.

JIM ZARROLI reporting:

Paul and Julie Leonard's home in Pascagoula, Mississippi sustained more than $130,000 worth of damage when Katrina hit the Gulf Coast. But Nationwide Insurance denied almost all of their claims. It said most of the damage to the home was caused by flooding and their policy didn't cover flood damage. In their suit, the Leonard's claim that much of the damage to their home was really caused by wind, not water. They also said the agent who sold them their policy had told them they didn't need flood insurance. In his ruling, Judge LT Senter, Jr. ruled against the couple. He said the onus was on the Leonards to get the right insurance policy, even if they wrongly inferred they were covered for flood damage. Craig Weber is a senior analyst at the research and consulting firm Celent.

Mr. CRAIG WEBER (Senior Analyst, Celent): This is clearly a victory for the insurance industry as a whole, and for Nationwide in particular. I think it's hard to read it any other way than that.

ZARROLI: But attorneys for the plaintiffs insisted yesterday that the ruling was also a victory for their clients. They noted that the judge had ordered Nationwide to pay the Leonards slightly more money for wind-related damage than it originally paid. The judge also struck down another part of the Nationwide policy, saying it was ambiguously worded. That section would have given Nationwide much more leeway to deny coverage in cases where multiple types of damage have occurred.

Although this case is now out of the way, the insurance industry faces thousands of suits from other disgruntled policyholders who say they were wrongly denied coverage following Katrina. The Leonard case differs from many of these because it centers on the role of the insurance agent, making its value as a legal precedent unclear. But Judge Senter will also hear many of the upcoming disputes, and with this ruling he's shown he's willing to give a sympathetic ear to the companies' claims.

Jim Zarroli, NPR News.

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