Senior District Judge L.T. Senter Jr. said the insurance policy of plaintiffs Paul and Julie Leonard of Pascagoula, Mississippi, specifically excluded flood damage.
However, Senter ruled that the couple could collect compensation from Nationwide Mutual Insurance Co. for wind damage -- a total of $1,228.16. The Leonards said their Gulf Coast home incurred more than $130,000 in wind and flood damage on August 29, when Hurricane Katrina raked the Gulf Coast.
The lawsuit argued that a Nationwide insurance policy bought by the Leonards in 2004 purported to provide full coverage for any damage typically caused by hurricanes. The lawsuit also said the insurance agent told the Leonards they did not need to purchase additional flood insurance, which is offered separately by the federal government.
Both sides claimed victory.
The Leonards' attorney, Richard Scruggs, interpreted the 13-page ruling as "a big win," despite the modest size of the award. He predicted it would set a precedent for homeowners.
"The insurance companies have been saying to everyone, under that clause that they lost today, that if you had 1 millimeter of saltwater in your home there was no coverage, even if the hurricane winds blew off your roof," he said.
"That, now, is off the playing field," Scruggs said. "They lost that, and that's going to be huge in future cases. This was a big win for us. Monetarily, it could have been more. We asked for more and thought it was justified, but a win is a win in the first game of the season, and you just take it."
In a written statement, Nationwide said, "We are very pleased that the court ruled in our favor and upheld the long-standing flood exclusion language which is foundational to traditional homeowner policies across the country."
The statement further said: "While it is unfortunate that the Leonards did not choose to purchase flood coverage, insurance carriers have an obligation on behalf of all policyholders to adjust claims based on factual evidence that supports coverage payments. We will continue to adjust claims on a case-by-case basis.
"This ruling underscores just how important it is for all policyholders to carefully read and understand the terms of the coverage they purchase," the statement said.
The Leonards filed their case in October in U.S. District Court in Southern Mississippi. It was the first to be heard among the hundreds of other Katrina-related cases against insurers, which have argued that they are not responsible for reimbursing homeowners for flood or wind damage.
Scruggs alleged that Jay Fletcher, Nationwide's sales representative, intentionally misled the couple about what their policy covered.
The judge disagreed.
"Fletcher did not materially misrepresent the terms of the Nationwide homeowners policy to the Leonards, and Fletcher did not make any statements which could be reasonably understood to alter the terms of the Nationwide policy," Senter wrote.
CNN's Megan Towey and Sean Callebs contributed to this story
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