A federal appeals court panel in New Orleans last week rejecteda lower court's ruling that permitted a Mississippi couple topursue a Hurricane Katrina homeowners claim even whenpolicy-excluded flood damage was involved.

The decision by the 5th U.S. Circuit Court of Appeals overturnsa ruling by U.S. District Court Judge L.T. Senter Jr. in Gulfport,Miss., that tossed out a portion of State Farm's policy language asambiguous.

State Farm was sued by Long Beach, Miss., homeowners John andClaire Tuepker, after their house was reduced to a foundation slabby Hurricane Katrina and the insurer refused to pay for thedamage.

At issue was language in the State Farm policy's anti-concurrentcausation clause that rules out payment for covered wind damageclaims when they occur at the same time as flooding, which thepolicy does not cover. The appeals court found that “the ACC clausein State Farm's policy is not ambiguous and should be enforcedunder Mississippi law.”

Under the appeals court ruling, the Tuepker case is effectivelyended because before a jury could rule whether State Farm owed thecouple damages, the insurer reached a settlement where the amountto be paid would be based on the outcome of the appeal. Had theTuepkers won the appeal, their settlement would have beenhigher.

The settlement was also reached before the jury could assess anyquestion of punitive damages.

The 5th Circuit Court did uphold Judge Senter on a ruling thatthe policy language excluded water damage and that storm surgedamaging the Tuepker's home is “unambiguously excluded fromcoverage.”

However, Judge Senter, while allowing the water damageexclusion, permitted the jury to consider how much wind damage thehome sustained.

“This reinforces the confidence we have in our policy languageand we are pleased with the [appeal] court's ruling,” said a StateFarm representative, Phil Supple. “State Farm continues to workwith the Mississippi Insurance Department on a resolutionagreement, and we've reevaluated 3,500 claims, adding another $55million to the area's recovery effort in payments topolicyholders.”

The Scruggs Katrina Group–the attorney combine that haslitigated numerous Katrina claim cases, including the Tuepkermatter–argued that there were some positive aspects to the latestruling.

“Although the 5th Circuit held the ACC clause was technically'unambiguous,' it severely limited its application only to caseswhere wind and water caused the exact same loss at the exact sametime,” the group said in a statement. “That never happens in ahurricane. Wind damage is always separate from water damage, andwind damage always occurs first.”

The Scruggs Group also said the 5th Circuit decision “confirmedthat if a loss is caused by wind, there is full coverage.”

A different three-judge panel of the 5th Circuit already hasfound that similar ACC language in Nationwide Mutual InsuranceCompany policies is not ambiguous and can be enforced.

The decision in Tuepker vs. State Farm “handed State Farm a hugewin,” said David Rossmiller, a Portland, Ore., attorney who defendsinsurers and has made a study of the ACC provisions in insurancepolicies. He called the case “one of the biggest” of the legaldisputes between insureds and their carriers over Katrinadamage.

He added that not only was the ACC language upheld, but theruling was a “clean opinion that confines itself to the necessaryfacts and is not going to be difficult for lawyers and parties tointerpret in the future.”

In related action, the 5th Circuit scheduled oral arguments forDec. 5 in another case involving State Farm and Katrina. In thiscase, Judge Senter ruled in January that State Farm owed a Biloxicouple $223,292 for their Katrina-demolished home and its contents.Judge Senter ruled that even though their policy excluded flooddamage, the company did not prove during trial that the entire losswas caused by flood.

He then allowed a jury to resume deliberations in the case todetermine punitive damages. The jury came back with an additionalaward of $2.5 million, which State Farm is appealing.