Katrina Insurance Trial Begins in Miss.

GULFPORT, Miss. -- A federal judge on Monday began hearing a groundbreaking trial that could signal whether thousands of people whose homes were destroyed by Hurricane Katrina can receive payouts for losses their insurance companies claim were caused by flooding.

Attorneys for Paul and Julie Leonard claim the couple was misled by their insurance agent and then denied much of their claim for their Pascagoula home without a full review of the facts.

Nationwide Mutual Insurance Co., argued that while wind damage is covered by its homeowners' policies, damage from flooding is excluded, including Katrina's wind-driven storm surge.

The trial, being heard without a jury by U.S. District Judge L. T. Senter Jr., is the first among hundreds of lawsuits that have been filed by Gulf Coast homeowners challenging insurance companies over the wind-verses-water issue. Plaintiffs' attorneys hope a ruling in the homeowners' favor would pressure insurance companies to pay out hundreds of millions of dollars in settlements for homeowners whose claims have been rejected.

Paul Leonard asked a Nationwide Mutual agent in 1999 if he should get flood coverage. "You don't need that," the agent replied, according to one of the Leonards' lawyers.

The agent did not want to write a flood policy "because he didn't make much money off of it," attorney Zach Scruggs said in opening statements.

Scruggs and his father, Richard "Dickie" Scruggs, represent about 3,000 policyholders on Mississippi's Gulf Coast. Their law firm also has filed suits against other insurers, including Allstate Insurance Co., Metropolitan Life Insurance Co., State Farm Insurance Cos. and United Services Automobile Association.

Zach Scruggs said Nationwide paid $1,600 to the Leonards for $130,000 worth of damage to their home, several hundred yards from the Mississippi Sound near the eastern end of the state's shoreline. He said that was $500 less than the premiums the family paid to Nationwide that year.

"Nationwide actually made money off the Leonards as a result of Hurricane Katrina," he said.

Dan Attridge, an attorney for the Columbus, Ohio-based company, said evidence would show the company "has fully complied with its obligations." He said the agent never told Leonard that flood damage was covered by his policy or that he did not need flood insurance.

Leonard, the first witness, said before Katrina, he had "always considered flood as coming from a river. Storm surge doesn't happen unless there's a hurricane."

Under questioning by the insurance company's attorney, Leonard said he did not need separate flood coverage because his agent "explained I had hurricane coverage."