Judge Duvall sent the ruling immediately to the U.S. 5th Circuit Court of Appeals, and in the opinion of Bear Stearns analysts, this was a suggestion "he was less than certain" in his decision.

Robert P. Hartwig, executive vice president and chief economist at the Insurance Information Institute, was of a similar mind, suggesting the judge's action meant he "had reservations in his own mind."

Mr. Hartwig said the judge had overreached--that his opinion went against legal precedent in other federal courts as well as the decision by the National Flood Insurance Program to pay millions in levee damage claims.

If the insurers could be held responsible, the government would not have paid for the flooding, he explained.

While the judge said the flood exclusion language was faulty in many policies, he found that both State Farm, the largest writer in the city, and The Hartford had proper wording and did not have to pay such claims.

John Ellison, an attorney with Anderson Kill & Olick, said plaintiffs will dispute the finding for State Farm in the 5th Circuit.

State Farm and Hartford excluded damages for water regardless of its "cause," but Allstate excluded the damage according to "source."

Morgan Stanley analysts noted that their legal experts said where there is ambiguity, insurance law calls for a decision for the plaintiffs, and therefore "it seems clear that the 'floodgates' [holding back claims] will open should this decision be upheld on appeal."

All of the analysts looked at Allstate, the biggest insurer to be hit by the ruling, and found that the insurer could sustain any damage.

Bear Stearns, using an estimate that the ruling, if upheld, could ultimately create a loss for insurers of $1 billion, said Allstate--with a 20 percent market share--would face a loss of about $200 million, which "may not be a significant dollar amount for Allstate." However, they also foresee "the likelihood that Allstate is forced to pay is limited."

Morgan Stanley said some legal sources suggest the judge's interpretation was "a real stretch for coverage." In the end, if the decision were upheld, Allstate might have subrogation rights against various levee authorities, they noted.

Mike Siemienas, an Allstate spokesman, would say only that the company "disagrees with the judge's conclusion that its policy exclusions do not apply to water damage resulting from the flooding in the New Orleans area. Allstate intends to appeal the decision in the United States 5th Circuit Court of Appeals."