A judge's verdict in Mississippi could relieve reinsurers of billions.

With reinsurers already absorbing about 50% of the losses from Hurricane Katrina, they avoided paying out billions more after a judge in Mississippi decided that the language in a homeowner's policy did exclude damage from storm surge and flooding, but ordered adjustments to be made if the damage was initially caused by wind.

In a case involving Nationwide Insurance on 15 August 2006, US District Senior Judge LT Senter Jr awarded $1,228.16 for additional wind damage ($1,661.17 had already been paid) to homeowners who had sought more than $130,000 in claim payments.

The judge ruled that Nationwide has met the burden of proving, by a preponderance of the evidence, that all other damage to the homeowners' property had been caused by water and waterborne materials and that recovery was excluded by specific language in the Nationwide policy. Flood insurance is only sold by the Federal government though insurance agents. Such insurance is required in certain flood zones to obtain home mortgages, but not elsewhere. The homeowners did not live in a flood zone.

The trial focused on a Nationwide agent who sold the Leonards of Pascagoula, Mississippi, a homeowner's policy. The Leonards asked the agent if they should buy a flood insurance policy and the agent said no. The homeowners assumed they were covered for flooding and storm surges with their homeowner's policy. The judge ruled that the Leonards inferred erroneously that floods and storm surge were covered, that such perils were specifically excluded in the policy, and that the agent had not misrepresented such exclusions.

Richard Scruggs, the lead attorney for the Leonards, was reported as saying that the case did clear “a big path for all the other homeowners on the Gulf Coast”. Judge Senter has asked Scruggs and 180 other lawyers representing claimants in similar cases if “some form of representative trial is a feasible alternative to individual trials”. Allstate objected, saying that each case must be decided on its own merits due to its “own idiosyncrasies”.