Gulf Coast Homeowners Outraged Insurance Won't Cover Losses

PASCAGOULA, Miss., Sept. 16, 2005 — -- The frontlines of the Gulf Coast reconstruction are crawling with insurance adjusters, making decisions which could lead to a new home -- or to bankruptcy -- for homeowners wiped out after Hurricane Katrina.

The insurance industry says it will likely pay as much as $60 billion in claims from Katrina. But at least 60 percent of homeowners in the hurricane zone had no coverage for flooding.The standard homeowners policy does not cover such damage.

"We'll look for water lines," one adjuster told ABC News. "A lot of the times, we'll look and see if we got shingles missing [or] blown out windows upstairs."

If adjusters find shingles missing and blown out windows, it is good news for homeowners, but visible water lines are not. The insurance industry sees Katrina as two separate events -- the wind storm, which is covered under hurricane riders in policies, and the flood, which is not covered.

Paul Leonard's adjuster found a water mark about chest high, which the insurance company insists is evidence that flooding caused the damage.

"What do you think it is?" Leonard said. "It's wind-driven water. The hurricane pushed in on us. It's not a flood, it's a tide coming from the Gulf and wind pushing."

Leonard is preparing to sue, and he has hired attorney Richard Sruggs, who won the $250 billion case against big tobacco.

"We're going to do everything we can to make them do the right thing," Scruggs said.

Scruggs refuses to use the word "flood" when referring to Katrina's damage, and he encourages clients to do the same.

"It's a hurricane-driven storm surge," Scruggs said. "Not a flood."

Contracts vs. Compassion

The insurance industry says while it feels compassion for the storm victims, the distinction is clearly pointed out in their policies.

But homeowners say their best evidence is common sense -- 100-year-old oak trees, for instance, don't fall to the ground in a flood alone.

Dr. Randy Roth's landmark 100-year-old home simply no longer exists in Katrina's wake. Roth purchased separate government flood insurance, but most homeowners don't realize it's capped at $250,000 -- a small amount for waterfront property. Unless his insurance company agrees there was windstorm damage and not just a flood, he cannot rebuild.

"If we didn't have 140-mile-an-hour winds, we wouldn't have had any water in our homes," he said. "I think they need to be understanding that this was a lot of wind damage."

Homeowners along the Gulf Coast are now bracing for the second hurricane -- a perfect storm of lawsuits as they battle over million dollar semantics.

ABC News' Jim Avila filed this report for "World News Tonight."