The indictment of plaintiffs attorney Richard "Dickie" Scruggs last week isn't the only new twist facing Gulf Coast homeowners in their battle with insurers over Hurricane Katrina claims.

Thanks in large part to a series of rulings, the legal landscape looks more favorable for insurers than it did early this year, particularly in Mississippi.

As a result, insurers may end up paying less to cover storm damage — and homeowners may receive less money to rebuild — than some expected in January.

Early this year, the insurers "were in a weak position, like that of a football team that is losing by a touchdown at the start of the fourth quarter," said David Rossmiller, a lawyer who has written about Hurricane Katrina cases, but isn't involved in the litigation.

"Things have completely turned around," he says. "They're up by 14 (points) with three minutes to go."

In January, insurers were facing uncertainty. That is when State Farm Insurance was hit with a $1 million judgment for the loss of a single home and agreed to a $79.5 million settlement for 640 families represented by Mr. Scruggs, one of the lawyers leading Hurricane Katrina lawsuits against insurers, and his associates. The year before, insurers had lost some early rounds in other cases.

Those events marked a high point for plaintiffs attorneys, including Mr. Scruggs, who was indicted last week along with four others on federal charges of conspiring to bribe a state-court judge. He has pleaded not guilty, and other plaintiffs lawyers have said they plan to take over his Hurricane Katrina cases. Mr. Scruggs didn't respond to a request for comment.

At the time of the January settlement, people tracking Hurricane Katrina cases said insurers on the coast might have to pay as much as $1 billion or more to resolve hurricane disputes in Mississippi, beyond the $5.5 billion in homeowners' claims they had paid.

Other major home insurers in the state, which have struck settlements with homeowners, include Allstate and Nationwide Mutual Insurance. Rulings by the US Court of Appeals for the Fifth Circuit in New Orleans, which encompasses hurricane-ravaged Mississippi and Louisiana, favored the industry on an issue that has been at the heart of the litigation from the start: whether provisions in homeowners' contracts excluding flood damage are enforceable.

Hurricane wind and surging water from the Gulf of Mexico caused catastrophic damage in the August 2005 storm. Many insurers rejected claims contending that damage was caused by water, as opposed to wind.

Plaintiffs lawyers pursued an aggressive legal and public-relations battle about the insurers' stance. While they scored some lower-court victories, some of those rulings have been overturned by the appeals court, which legal scholars say is one of the nation's most conservative federal appeals courts.

"It's not rocket science to understand that emotions run very high on the coast over Hurricane Katrina," says Sheila Birnbaum, a lawyer for State Farm. "We thought it was necessary to get these decisions and take them to the ultimate arbiter, the appeals court."

The rulings "are going to make it much more difficult for an individual with a claim to be successful with that claim," says Jack Denton, one of the attorneys representing the homeowners who won the $1 million judgment against State Farm in January.

The rulings could also bolster insurers' positions in future catastrophes.

The financial repercussions are likely to be significant. Shortly after the January settlement and the judgment against State Farm, Douglas Pawlowski, an analyst at Fitch Ratings, estimated that insurers could have to pay an additional $1 billion to $2 billion in Mississippi.

Now, Mr. Pawlowski says, that estimate could be "at the lower end of the range that we were talking about, and perhaps lower than that." He cited the series of appellate rulings as one of the main reasons.

The effect of the changed landscape on investors may be limited. Insurers have paid a lot, and their shares have been volatile for other reasons, including fallout from the housing market. Some insurers, such as State Farm, are mutual companies and aren't publicly traded.

As for lawsuits that had been filed, many have been resolved. Scruggs Katrina Group, a consortium of plaintiffs lawyers set up after the storm, struck settlements this year in about 280 cases against Allstate; 227 cases against Nationwide; and about 30 cases with MetLife Inc., another major insurer.

The terms of these settlements were confidential. State Farm has paid another $60.9 million to more than 4,000 homeowners whose claims it reviewed as part of a deal with the Mississippi Insurance Department. Overall, insurers have paid $41.1 billion for hurricane damage, including commercial losses, according to estimates from the Insurance Information Institute, a trade group.

There are lawsuits pending. State Farm faces 180 lawsuits that were filed by Scruggs Katrina Group. The appellate rulings have likely prevented some lawsuits from being filed, says Robert Hartwig, president of the Insurance Information Institute. There are also many cases pending in Louisiana, and their outcome could change the situation again.

Meanwhile, Mr. Denton's $1 million case was also heard on appeal this week in the Fifth Circuit. A critical issue at stake there centers on who bears the burden of proof: The trial judge found that insurers must prove what damage was caused by water, and isn't covered. That can be tough when a house has been demolished to its concrete slab, as many were in Mississippi. State Farm contends homeowners should have to prove what damage was caused by wind.

(The Wall Street Journal)