In a setback for insurers, a federal judge has ruled that a state court should hear a suit brought by Mississippi over property-casualty insurers' denial of hurricane claims based on flood exclusion policy language.

U.S. District Court Judge Tom S. Lee in Jackson, Miss., said that while there is "federal interest in the subject matter and outcome in the suit," ultimately the issues remain state-oriented.

Mississippi Attorney General Jim Hood filed the suit in an attempt to compel insurance companies to cover damage created by wind-driven storm surge.

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