Though Hurricane Katrina struck the Gulf Coast nearly 18 months ago, the storm is still landing plenty of punches on insurance companies.

A recent verdict in the case Broussard v. State Farm not only held State Farm responsible for policy limits that totaled more than $230,000 on a loss it had deemed due to storm-surge flooding, but it also put the company on the hook for $2.5 million in punitive damages. The devastating judgment could set a dangerous precedent for State Farm and other companies who supply the Gulf Coast region with homeowners' insurance.

In his ruling, Judge L.T. Senter, Jr., stated that State Farm did not present enough evidence to prove what damage was caused by wind and what was caused by water. He further said that the Broussard's only needed to prove a direct physical loss. It was Senter's first negative ruling against the insurance industry. In August 2006, he affirmed flood-exclusion language contained in most companies' insurance policies, which resulted in a dismissal of a lawsuit made against Nationwide.

While the Broussard verdict is a blow to State Farm, the verdict was based on the specifics of the case, which will be different in every other pending case and may prevent others plaintiffs from using it as a legal precedent for a class-action suit.

A week prior to the Broussard ruling, it appeared the fight over wind vs. water litigation in the state might be over before it began. Mississippi Attorney General Jim Hood, who has spearheaded the litigation efforts against insurance companies, made a public statement days before the Broussard ruling that sounded less prescient and more like someone who had just completed negotiating a settlement. Full of bravado and political grandstanding, his statement made thinly veiled threats to insurance companies, even calling them "sneaky."

"Although I have continuously tried to resolve the issue peacefully by settlement, if the insurance companies want to fight, then we are ready to meet them," said Hood, in a statement published on his web site.

Those settlement talks could be put on hold given the Broussard judgment. But at least one industry expert isn't so sure.

"I'm not privy to the [settlement] talks," said Joseph Annotti, spokesperson for the Property Casualty Insurers Association of America. "I think some believe it could spur a settlement while others could look at this and say, 'Why settle when we can go to court and have the potential to get [punitive] damages?'"

The ruling is expected to have negative repercussions for the coastal residents all over the U.S. Insurance coverage that already was prohibitively expensive might not even be available this time next year.

"Looking at the problems in coastal markets, not just in Mississippi but throughout the Gulf Coast and Eastern seaboard, [the Broussard decision] is not going to stimulate a rapid recovery or certainly more interest in entering coastal areas where those wind-vs.-water situations are most likely to arise," said Annotti. "I think it will spur companies to take a very, very close look at their policy language."

For now, however, State Farm is left to handle the situation on its own. Shortly after the verdict, the company released a statement declaring its surprise.

"We did not expect this decision," said Kim Brunner, executive vice resident, secretary, and general counsel for State Farm. "Testimony of expert witnesses showed that damage to the Broussard home was overwhelmingly caused by water and not wind."

The company said that it is evaluating the next steps it will take, including the option of an appeal.

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State Farm Loses Wind-Vs.-Water Case in Mississippi

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