A federal appeals court sided with Nationwide Mutual Insurance Co. on Thursday in a key case related to hundreds of lawsuits over damage caused by Hurricane Katrina.

The 5th U.S. Circuit Court of Appeals in New Orleans ruled that language in the insurer’s storm policy that was used to deny coverage for flood damage is not “ambiguous.”

“The reason the term ‘ambiguous’ is important in insurance matters is because ambiguity in insurance contracts is almost universally decided in favor of the policyholder,” said Robert Hartwig, vice president and chief economist for the Insurance Information Institute in New York.

The appeal arose from the first trial among hundreds of Katrina insurance lawsuits filed in Mississippi.

Paul and Julie Leonard sued Nationwide after it refused to pay for storm surge damage to their home in Pascagoula. Nationwide said Paul and Julie Leonard’s policy did not cover damage from rising water and the company was only responsible for wind damage.

The Leonards said the total damage to their home was $130,253 and the Columbus, Ohio-based insurer only paid them $1,661.

In last year’s trial, U.S. District Judge L.T. Senter ordered Nationwide to pay the Leonards an additional $1,228 for wind damage from the 2005 storm.

Both the Leonards and Nationwide viewed Senter’s ruling as a victory. However, the insurance company appealed because it wanted clarification on whether a provision in the policy was ambiguous.

The company said the policy’s anti-concurrent causation provision means that if a policyholder has wind coverage but not flood insurance, then the company is not responsible for damage from a combination of wind and water. A ruling that the clause is ambiguous could have been used against the company in lawsuits involving so-called “slab cases,” in which a home was reduced to its foundation, Hartwig said.

“While we are studying the implications of the ruling, it does appear that the court’s ruling fixes the issues Nationwide addressed in its appeal,” Nationwide spokesman Joe Case said. “Had the district court ruling been allowed to stand, it may have meant that Nationwide’s Mississippi homeowner policies could have been forced to cover losses for which premium had never been collected.”

Zach Scruggs, an attorney representing dozens of policyholders on the Gulf Coast, called the ruling “disappointing” but said its effect is limited.

“This ruling will have no effect on our remaining cases pending in Mississippi state and federal courts, because all of the damage in those cases was caused exclusively by wind before any water arrived,” said Scruggs, who along with his father, high-profile attorney Richard “Dickie” Scruggs, is part of the legal team that represents the Leonards.

Scruggs said the Leonards will appeal the ruling.

“We are disappointed that this particular appellate panel misinterpreted and misapplied established Mississippi law by reversing the well-reasoned ruling of Judge Senter, who has been a Mississippi State and federal court judge for over 40 years and is well versed in the issue of Mississippi insurance law,” he said.