A federal judge ruled Tuesday that an insurance company’s policies do not cover damage from flood waters or storm surge in a decision that could affect hundreds of upcoming cases related to property damage from Hurricane Katrina.

U.S. District Judge L.T. Senter Jr. ruled that a Mississippi Gulf Coast couple cannot collect damages from storm surge caused by Katrina because Nationwide Mutual Insurance Co.’s policies do not cover wind-driven water damage.

Senter said Paul and Julie Leonard of Pascagoula could be compensated for damage that they could prove was caused by high winds, however.

“Almost all the damage to the Leonard residence is attributable to the incursion of water,” Senter wrote in the 13-page decision.

Senter’s ruling could set a precedent for hundreds of other court challenges to the insurance industry for denying billions of dollars in claims after the Aug. 29 hurricane ravaged the coasts of Louisiana and Mississippi.

Although Senter ruled that Nationwide’s policies do not cover damage from storm surge, the judge also concluded a key policy provision the company has used to deny coverage is ambiguous.

Nationwide and other insurers say their homeowners policies cover damage from a hurricane’s wind, but not in cases where it resulted from a combination of wind and water.

“This reading of the policy would mean that an insured whose dwelling lost its roof in high winds and at the same time suffered an incursion of even an inch of water could recover nothing under his Nationwide policy,” he wrote.

“From our perspective, it lifts a very large cloud of uncertainty that has been hanging over the insurance market of the Gulf Coast,” Joseph Annotti, spokesman for the Property Casualty Insurers Association of America, said in reaction to the ruling. “A healthy insurance market is absolutely key to a rejuvenated economy down there.”

Shares of most property and casualty insurers rose following the ruling, amid a generally surging stock market.

American International Group Inc. shares added 73 cents to $62.43. Allstate Corp. shares gained 80 cents to $57.22, St. Paul Travelers Cos. shares rose 93 cents, or 2.1 percent, to $44.02, and Hartford Financial Services Group Inc. shares jumped $1.01 to $82.49, all on the New York Stock Exchange.

“It’s a favorable first decision for the industry,” said Fox-Pitt Kelton analyst Gary Ransom. “I never really had much doubt that this was the way it was going to work out. There’s a lot of precedent for this. It’s not like we’re interpreting these contracts for the first time.”

The Leonards had estimated the total damage to their home at $130,253. They said $47,365 in damage was caused by wind. Nationwide paid only $1,661, blaming the remainder on the storm surge.

The couple’s attorneys had asked for more than $158,000 for the damage to the house and its contents, plus interest and attorneys’ fees and expenses. Senter, however, ruled that Nationwide only owed the Leonards about $1,228 more than what the company already has paid them for wind damage.

Both sides claimed victory in the wake of Senter’s ruling.

“The Leonards did not win as much money as I hoped they would have, but they won this case,” said one of their attorneys, Richard “Dickie” Scruggs. “It’s always great to get a win in the first game of the season, whether it’s by one point or 30 points.”

Paul Leonard, a police lieutenant, acknowledged that an extra $1,228 only covers a fraction of the repair costs for his home, but he also considered Senter’s ruling a victory.

“I believe anybody in a civil trial asks for the moon and is able to live with what they get,” he said.

Nationwide spokesman Joe Case said the company is pleased that Senter upheld the terms of the flood exclusion language in its policies.

“While it is unfortunate that the Leonards did not choose to purchase flood insurance, insurance carriers have an obligation on behalf of all policyholders to adjust claims based on factual evidence that supports coverage payments,” Case said in a prepared statement.

The Leonards claimed a Nationwide agent, Jay Fletcher, told them they didn’t need flood insurance.

Senter rejected the Leonards’ claim that the agent’s alleged assurances make Nationwide liable for damage from both wind and water. Paul Leonard mistakenly inferred that his policy covered water damage, the judge ruled.

“Fletcher did not materially misrepresent the terms of the Nationwide homeowners policy to the Leonards, and Fletcher did not make any statements which could be reasonably understood to alter the terms of the Nationwide policy,” Senter wrote.

The couple’s lawsuit was the first among hundreds of Katrina insurance cases to be tried since the storm slammed into the Gulf Coast nearly a year ago, demolishing tens of thousands of homes.

Senter presided over an eight-day trial without a jury last month. He is hearing virtually all the Katrina insurance cases in Mississippi, so his ruling will be scrutinized by thousands of Gulf Coast homeowners as well as the nation’s top insurers.