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SCOTT JAGOW: Insurance companies and flood victims are keeping close tabs on a trial in Gulfport, Mississippi this week. It's the first insurance lawsuit to come out of Hurricane Katrina and it could set a precedent. In a lot of Katrina cases, insurers claim their homeowners' policies don't cover floods. Sarah Gardner tells us more.

SARAH GARDNER: A Pascagoula couple sued Nationwide Mutual Insurance after the company denied their claim for over $100,000 in damages following Katrina. The insurance company said the damage to the Gulf Coast home was caused by water, not wind, and homeowners' policies don't cover floods, including storm surge.

Robert Hartwig is chief economist for the Insurance Information Institute.

ROBERT HARTWIG:"If insurers cannot count on courts to enforce the longstanding, regulatory-approved and federally recognized terms of a contract then there is no way that insurers can operate in that environment because there is no way that you could determine what price you should charge for your product."

Still, Mississippi's attorney general is suing a string of insurance companies over the same issue and the plaintiffs' lawyer in this trial represents about 3,000 other Katrina victims. One of them is his brother-in-law, US Senator Trent Lott.

I'm Sarah Gardner for Marketplace.

Follow Sarah Gardner at @RadioGardner