(FORTUNE Magazine) – To hear Mississippians tell it, Hurricane Katrina is creating a new North-South divide. The dustup pits Gulf Coast homeowners, trial lawyers, and elected officials against insurance companies. At issue is whether the bulk of Katrina's damage was caused by wind, which insurers cover as part of standard homeowners' policies, or floodwaters, which aren't covered. Leading the charge against the insurers are Mississippi attorney general Jim Hood and Richard Scruggs, the Mississippi attorney who famously hobbled the tobacco and asbestos industries. Scruggs announced plans to file a lawsuit on behalf of residents of Mississippi, Alabama, and Louisiana, alleging that insurers are "attempting to minimize their hurricane coverage by intentionally misclassifying the hurricane's destruction as mere flooding." The suit names the three largest insurers in the region: State Farm, Allstate, and Nationwide.

It's not exactly Johnny Reb against the Yankees, but the conflict is dredging up all the old feelings of Southern mistreatment at the hands of mostly Northern entities. And Scruggs's rhetoric isn't helping. "I'm sure the insurance companies will send all the Philadelphia lawyers they can muster," he said. "But frankly, this is the kind of battle I relish, because they tend to underestimate us down here."

A lot is at stake. Katrina is likely to set a record for insurance-industry payouts. The wind and rain that wrought havoc across Florida, Alabama, Mississippi, and Louisiana caused nearly three times the property damages of the Sept. 11 terrorist attacks, generating insured losses of up to $60 billion, according to analysis firm Risk Management Solutions. A day before Scruggs announced his planned lawsuit, Hood named the same companies in a similar suit that also charges insurance adjusters with attempting to dupe policyholders by asking them to sign forms that say they sustained flood damage in exchange for expediting checks for living expenses.

An Allstate spokesman says the company's flood exclusions have been in place for decades. State Farm denied Hood's charges and said he is retroactively challenging the validity of contracts. Nationwide said that the suit threatens to hurt all policyholders. It's unclear whether insurers are willing to see these cases through. Despite the industry's $400 billion in capital, Scruggs and Hood will have home-field advantage and a lot of bruised Southern pride in the jury pool.