In a setback for insurers, a federal judge has ruled that a state court should hear a suit brought by Mississippi over property-casualty insurers' denial of hurricane claims based on flood exclusion policy language.
U.S. District Court Judge Tom S. Lee in Jackson, Miss., said that while there is "federal interest in the subject matter and outcome in the suit," ultimately the issues remain state-oriented.
Mississippi Attorney General Jim Hood filed the suit in an attempt to compel insurance companies to cover damage created by wind-driven storm surge.
Defendants in the case–State Farm, Nationwide, USAA, Allstate and the Mississippi Farm Bureau–sought to remove the case to federal court on the basis that the outcome would affect flood risk coverage provided by the federal government through the National Flood Insurance Plan.
David Reddick, senior state affairs manager for the National Association of Mutual Insurance Companies, criticized the judge for failing to take into consideration the impact of the case "on the uniformity of federal flood insurance plan coverages in states susceptible to hurricanes and their resulting damage."
The case will in all likelihood revert to Hinds County Chancery Court, where it was first filed last September in the aftermath of Hurricane Katrina, whose whipping winds created a storm surge that inundated Mississippi coastal areas, according to Mr. Reddick.
An estimated 40 percent of homeowners who suffered severe damage from Hurricanes Rita and Katrina did not have flood coverage, which since 1968 has been provided by the federal government.
The suit does not challenge the flood exclusion as such, but asserts that the wind-driven storm surge losses should not be excluded like those from traditional floods, or even the flooding that occurred in New Orleans resulting from the breach in the levees.
The insurance industry has vigorously contested the suit, asserting in the words of Institute of Insurance Information chief economist Robert Hartwig, "The flood exclusions are very broad and cover rising waters, regardless of the cause or circumstances."
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