A trial set to open here Monday is expected to be the first legal test of the wind-versus-water debate that has pitted thousands of Gulf Coast policyholders against their insurance companies since Hurricane Katrina.
The lawsuit, filed on behalf of a Pascagoula police officer against Nationwide Mutual Insurance Co. after the insurer refused to cover damage to his home, will be heard by a federal judge, not a jury.
The case is believed to be the first Katrina-related insurance suit to be tried since the storm roared ashore Aug. 29 and destroyed or damaged tens of thousands of Gulf Coast homes.
Police Lt. Paul Leonard and his wife, Julie, claim Nationwide denied their claim without thoroughly investigating whether Katrina's wind or "storm surge" was responsible for the damage to their house, which is several hundred yards from the Mississippi Sound.
The Leonards, who purchased their policy more than a decade ago, also claim that their insurance agent had assured them that they didn't need to buy flood insurance for their home because their policy would cover all hurricane damage.
While Nationwide homeowners' policies cover wind damage, the Columbus, Ohio-based insurer argues that damage from flood waters, including wind-driven "storm surge," is excluded from coverage.
"Essentially, the Leonards are asking the court to change their contract after the fact," said Nationwide spokesman Joe Case. "They're asking for flood damage to be covered, and they didn't purchase flood insurance, regrettably."
In June, U.S. District Judge L.T. Senter Jr. ruled that Nationwide's policies cover damage from hurricane winds but not from "water or water-borne materials (other than damage caused by rain, driven through roof or wall openings made by direct action of wind)."
The Leonards are represented by high-profile attorney Richard "Dickie" Scruggs, who helped secure a landmark, multibillion dollar settlement with tobacco companies in the late 1990s.
"Everyone is going to be watching the result of this," Scruggs said of the trial, which is expected to last a week or two. "It won't be binding for other cases, but the precedential effects of this will be enormous because it's the first one."
Scruggs represents around 3,000 policyholders on Mississippi's Gulf Coast, including his brother-in-law, U.S. Sen. Trent Lott, R-Miss., whose Pascagoula home was demolished by Katrina.
Senter presides over the Leonards' case and others that Scruggs has filed for hundreds of policyholders against other insurers, including Allstate Insurance Co., Metropolitan Life Insurance Co., State Farm Insurance Cos. and United Services Automobile Association.
Mississippi Attorney General Jim Hood also is suing insurance companies, arguing they should pay for all of Katrina's property damage, whether it was caused by wind or wind-driven water.
Dr. Robert Hartwig, chief economist for the Insurance Information Institute in New York, warned that a victory by the Leonards would "create chaos in insurance markets all over the country" because it would send a message that contracts can be "retroactively rewritten" after a disaster.
"That creates an impossible business environment," he said.
Scruggs and other plaintiffs' hope that winning this and a handful of other cases would pressure insurers into settling thousands of other Katrina-related lawsuits.
"The outcome will at least set the tone for future cases against all (insurance) companies," Scruggs said.
Hartwig, however, downplayed that scenario.
"Insurers will be looking at every single case on its merits," he said.
Leonard, whose house sustained an estimated $100,000 in damage, has spent roughly $20,000 out of his own pocket to repair his home.
"The goal here is to make my home whole again," he said of his lawsuit. "If it helps someone else, that's great. But I'm fighting for my family's future."
- 124 War & Disaster Profiteering