By Bloomberg, AP and Staff Reports

A federal judge in Gulfport, Miss., has denied State Farm's request to dismiss a lawsuit against it.

State Farm Insurance Co. wanted the lawsuit dropped because the homeowners, Mark and Deborah Buchanan, received an emergency Small Business Administration loan to help rebuild their home in Waveland, Miss., after Hurricane Katrina struck in 2005.

U.S. District Judge L. T. Senter, in denying the motion, said he was "at a loss to understand" State Farm's argument.

The judge said in a Sun Herald newspaper story that the policyholders have a right to pursue the lawsuit and a separate obligation to repay the SBA any amount owed from insurance proceeds collected.

The SBA also issued a statement saying the assignment of insurance proceeds is not an assignment of the right to sue, and any payment to policyholders would benefit the SBA by reducing the policyholders' debt.

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