State Farm policyholders Norman and Genevieve Broussard of Biloxi, Mississippi have been awarded $2.5 million in punitive damages in their case against State Farm Fire and Casualty Co. The judge in the case also awarded the couple $223,292 for damage caused to their home by Hurricane Katrina.

The lawsuit was started because State Farm refused to pay for any damage to the Broussards’ home, which was completely leveled in the storm. State Farm said that the home was destroyed by an uninsured storm surge, while the Broussards claimed that is was destroyed by a tornado during the hurricane.

Insurers of homeowners caught in Hurricane Katrina typically provide policies that cover damage from wind, but not water. They also exclude damage that is cause by a combination of both wind and water, even if hurricane-force winds occur before water damage.

The judge in this case ruled that State Farm could not prove that a storm surge was responsible for the damage to the Broussards’ home, and that the testimony in the case didn’t prove how much was caused by wind versus water.

State Farm is likely to appeal.

See my pictures of hurricane damage here and here.