In the immediate aftermath of Hurricane Katrina, it was unclear if the industry would sink or swim in the legal fight over claims. But after years of court battles, eventually insurers prevailed in the question of wind vs. water.

"There were really two big issues at play," according to Sarah Downey, an attorney with White and Williams LLP -- whether wind-driven storm surge was excluded by the flood exclusion in homeowners insurance policies and the anticoncurrent causation clause, which excludes flood losses even if other causes acted concurrently or in any sequence with the excluded event to produce the loss.

"In the wake of Katrina there was... a lot of anti-insurer sentiment," said Brian Green, an attorney with the insurance/reinsurance department of Edwards Angell Palmer & Dodge LLP. Not only that but famed attorney Richard "Dickie" Scruggs; his brother-in-law, then-Senate Majority Leader Sen. Trent Lott; Mississippi Attorney General Jim Hood, and other well-placed public figures were coming out swinging against the industry. "From the insurance company standpoint, it looked like it was going to be a huge mess."

The litigation began in earnest, followed by some high-profile settlements. Early cases were going against the insurance industry, and Scruggs' cases were bolstered by the so-called whistle-blowers -- the Rigsby sisters, Kerri and Cori, former insurance adjusters who handed Scruggs thousands of claims documents that allegedly proved State Farm was altering claims reports to shift losses to the National Flood Insurance Program.

But the tide began to turn in the insurers' favor at the appellate level.

"The policies were written in a way that even a non-attorney would understand," said Robert Hartwig, president of the Insurance Information Institute. "Ultimately, the courts upheld [the exclusions] but it took two years."

Then Scruggs fell afoul of the law himself, eventually being convicted of attempting to bribe a Mississippi judge in a case over the distribution of attorneys' fees in previous settlements with State Farm. Without their legal crusader, the plaintiffs in many of the lawsuits suffered a blow. Green said Scruggs' downfall "took a lot of steam" out of the legal onslaught against insurers.

Downey said three cases proved especially key in turning things in the insurers' favor in the disputes. For the anticoncurrent causation clause, there were two big cases in 2007 in the 5th Circuit Court of Appeals: Leonard v. Nationwide and Tuepker v. State Farm. Both rulings found in favor of upholding the concept. Meanwhile, the same court upheld the flood exclusion in a consolidated case, which argued the New Orleans levees breached because of negligent design, construction or maintenance and the subsequent flooding was "man-made" and therefore not subject to the flood exclusion. The court found it was irrelevant whether flooding was "man-made" or natural, stating "the waters are still floodwaters, and the result is a flood."

"Locally, this hurricane season, if there was another Katrina-like storm... these decisions do create a precedent," Green said. However, Green said he believes a Katrina-like storm in another part of the country would set off a new storm of litigation. "You'd have to start anew," he said. "You'd have similar types of lawsuits."

Hartwig isn't so sure that would be the case. Hurricane Ike caused a lot of storm surge-related damage, he noted, but "pretty much, the trial lawyers understood that it would not be fruitful" to pursue legal action challenging the exclusions. The case law was "not only established but very fresh."

"States look at other state's decisions to form an opinion," he said.

Green does think the case law in Louisiana and Mississippi provide a basis for insurance companies to expect their limiting language in policies would be enforced. However, in the wake of a Katrina-like event, there could always be a political push for insurance "reform."

(By Rick Cornejo, managing editor, BestWeek: rick.cornejo@ambest.com)