Insurers said they were disappointed with a federal judge'sdecision to send a suit filed by Mississippi's attorney generalback to state court where insurers are less confident of a verdictin their favor.

On Tuesday, U.S. District Court Judge for the Southern Districtof Mississippi L.T. Senter Jr., sitting in Jackson, Miss., ruledthat a March decision by U.S. District Court Judge Tom S. Lee wascorrect to order a suit brought on flood claims be returned tostate court.

Insurers wanted the case to be heard in federal court, arguingthat because it involves the federal flood program, it should beheld at the federal level. The judges ruled that insurance isprimarily a state issue and the suit belonged in the statecourt.

The suit was brought by Mississippi Attorney General Jim Hoodagainst five insurers: Mississippi Farm Bureau Insurance Company,State Farm Fire and Casualty, Allstate Property and CasualtyInsurance Company, United Services Automobile Association, andNationwide Mutual Insurance Company. Mr. Hood is seeking to forcethe insurers to pay for the total loss of homes from HurricaneKatrina. He contends that waves caused by storm surge are notencompassed by flood exclusions in insurance policies, referring tothe companies as “sneaky” in their adjusting of claims.

In a statement after the decision, Mr. Hood said he has been indiscussions with several companies “with the aim of trying toresolve these issues without the expense and time of litigation.”He said he was hopeful that companies would “come forward and dowhat is right toward the policyholders.”

He threatened that unless companies come to an agreement, theycan expect investigations from Congress and a demand from theAmerican people for “national insurance reform and an AmericanInsurance Bill of Rights.”

For its part, Raleigh Floyd, a spokesperson for Northbrook,Ill.-based Allstate, said: “We are disappointed with the federalcourt's decision. We are reviewing our options and feel thatwhatever court decides this issue, it will be consistent with pastdecisions upholding flood exclusion language.”

He said he could not comment on Mr. Hood's statement thatinsurers are in talks with him to reach a settlement.

Phil Supple, a spokesperson for Bloomington, Ill.-based StateFarm, said the company is disappointed in the decision but isconfident the state court will uphold the flood exclusions ininsurance policies. He added that since Mr. Hood's filing of thesuit the company has had periodic contacts with his office in aneffort to find a “proper and appropriate way to resolve theseissues.”

Columbus, Ohio-based Nationwide's spokesperson, Joe Case, saidthe company's attorneys are reviewing its options and the companyremains committed to defending its contract language. He added thatthe company feels it adjusted policyholder's claims properly.

He would not comment on any contacts Nationwide has had with Mr.Hood.