JACKSON Miss.

A federal judge on Monday dismissed claims of fraud in a key Hurricane Katrina lawsuit that accused State Farm Fire & Casualty Co. of using different engineering reports to deny a couple's insurance policy after the storm.

The ruling by U.S. District Judge L.T. Senter Jr. applied to the federal lawsuit filed by Thomas and Pamela McIntosh, who sued State Farm after the insurer blamed most of the damages to their Biloxi home on Katrina's storm surge and paid the couple $36,228. The homeowners policy excluded coverage for flood damage.

"Judge Senter has confirmed what we have been saying all along this is a basic wind/water dispute and plaintiffs cannot prove fraud," State Farm spokesman Jonathan Freed said Monday. "Shortly after the storm, State Farm paid the limit on the McIntoshes' flood policy and also paid in excess of $36,000 for wind damage."

The case was a key lawsuit filed by embattled tort attorney Richard "Dickie" Scruggs, who sued on behalf of dozens of storm victims claiming that State Farm routinely denied claims based on bad faith and fraud. Scruggs has since pleaded guilty to federal bribery charges in an unrelated case and no longer represents storm victims.

Scruggs and his partners in the Scruggs Katrina Group claimed fraud after E.A. Renfroe & Co., an Alabama firm that provided damage assessments for State Farm, allegedly produced two different engineering reports in October 2005, just weeks after the storm devastated the Gulf Coast on Aug. 29, 2005.

Senter's partial summary judgment dismisses claims of fraud against the Bloomington, Ill.-based insurer and allegations of "aiding and abetting" fraud on the part of Renfroe.

"Plaintiffs contend that State Farm, acting through Renfroe and Forensic (Analysis & Engineering Corporation) deliberately underestimated the amount of wind damage the insured property sustained in order to minimize its liability under the plaintiffs' homeowners policy," Senter wrote. "While this allegation, if sustained, would support a finding of bad faith, it is not sufficient to support an allegation of fraud."

"It follows that Renfroe cannot have 'aided and abetted' a fraud that did not occur," the ruling said.

Senter ruled earlier this month that attorneys once affiliated with Scruggs on the case could no longer represent any policyholders in lawsuits against State Farm over Katrina damages. The judge said the attorneys knew Scruggs paid two sisters who once worked for Renfroe $150,000 a year and planned to use them as so-called "whistleblowers" after they secretly copied thousands of storm damage reports. Senter said "these payments were clearly improper."

It's not clear who, if anyone, is representing the McIntoshes at this time. An attorney who has represented them in the past did not immediately respond to a message left Monday by The Associated Press.

Scruggs made a name for himself in the 1990s after using a corporate insider to help states secure multibillion-dollar settlements with tobacco companies.

However, Scruggs and several associates were indicted last November and accused of offering to pay a judge $50,000 for a favorable ruling in a dispute over $26.5 million in fees from a mass settlement of Katrina cases. They await sentencing.

Copyright 2008 Associated Press