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Insurance companies sued over Katrina surge coverage

Tobacco lawyer takes on insurance industry

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Richard Scruggs

NEW YORK (CNN) -- Richard Scruggs, the Mississippi attorney who helped win a $250 billion settlement from the tobacco industry a few years ago, is now taking on insurance companies over Hurricane Katrina flood coverage.

Scruggs filed a lawsuit Tuesday in Mississippi state court accusing Nationwide Mutual Insurance Company, and others, with failing to provide adequate coverage. The suit also alleges the companies intentionally misled policyholders about what was covered.

The insurers say their policies specifically exclude flooding caused by storm surge; the lawsuit contends the policyholders were led to believe otherwise.

Scruggs filed the suit on behalf of Paul and Julie Leonard, a Pascagoula, Mississippi, police lieutenant and his wife.

The couple's Gulf Coast home was damaged by Hurricane Katrina's storm surge.

The lawsuit contends that the Leonards bought a Nationwide policy in 2004 with a coverage amount of $154,300. According to the suit, the policy was to provide full coverage for any damage typically caused by hurricanes. But it did not specifically state that storm surge damage was covered.

The lawsuit also alleges that an insurance agent told the Leonards they did not need to purchase additional flood insurance, which is offered separately by the federal government.

Nationwide sent the Leonards a letter on Sept. 12 denying their claim but never inspecting the damage to their home, court papers say.

The suit seeks what it calls "equitable relief under the law," the rewriting of insurance policies and coverage for damage to the Leonards' home and property.

Nationwide said the company had not yet reviewed the lawsuit. The company said in a news release that its policies clearly state, "Hurricane coverage does not include loss caused by flooding, including but not limited to flooding resulting from high tides or storm surges."

Nationwide said if such exclusions were deemed null and void, it would have a significant negative impact on insurance policyholders across the country.

In September, Scruggs announced he would sue major insurers, including Nationwide, on behalf of Mississippi and Alabama Gulf Coast residents who sustained damage from Hurricane Katrina.

Scruggs told CNN that he will not seek class-action status, but instead will file individual lawsuits from thousands of homeowners who have retained his firm.

The lawyer added he will focus on one case in court and resolve the others based on its outcome.

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