updated 1/23/2007 8:43:18 PM ET 2007-01-24T01:43:18

State Farm Fire & Casualty Co. agreed Tuesday to settle hundreds of lawsuits by policyholders and reopen and pay thousands of other disputed claims, a landmark deal potentially worth hundreds of millions of dollars for Mississippi homeowners devastated by Hurricane Katrina.

The settlement calls for State Farm to pay about $80 million to more than 600 policyholders who sued the company for refusing to cover damage from the Aug. 29, 2005, storm. State Farm also agreed to pay at least $50 million — but possibly hundreds of millions more — to thousands of Mississippi policyholders whose claims were denied but didn’t sue the company.

State Farm’s agreement with Mississippi Attorney General Jim Hood and lawyers for the more than 600 policyholders resolves a civil lawsuit that Hood filed against the company for refusing to cover damage from Katrina’s storm surge.

The accord also resolves Hood’s criminal probe of allegations that the Bloomington, Ill.-based insurer fraudulently denied claims after the August 2005 storm.

“It’s been like a death roll with an alligator for the last two months in these negotiations,” Hood said.

Mississippi’s mass settlement — the first of its kind since Katrina spawned hundreds of lawsuits against State Farm and other major insurers — does not involve any claims in other states.

The deal was expected to be presented to U.S. District Judge L.T. Senter Jr. in Gulfport Tuesday afternoon. Senter must sign off on the settlement.

“The agreement greatly reduces the time, the risk and the expense of defending multiple claims in individual litigation,” said State Farm spokesman Phil Supple.

State Farm, the state’s largest home insurer, says it already has paid roughly $1.1 billion for about 84,000 property claims in the state. State Farm and other insurers paid for Katrina’s wind damage, but Hood and hundreds of policyholders sued the companies over their refusal to pay for more than $2 billion in damage from the storm’s wind-driven surge.

The settlement resolves the lawsuits that high-profile attorney Richard “Dickie” Scruggs filed on behalf of 639 policyholders, including Sen. Trent Lott, R-Miss. Each of these policyholders will receive an average of about $125,000.

A “class action” component of the deal requires the company to reopen and review claims filed by roughly 35,000 policyholders who live in Mississippi’s three coastal counties but didn’t file lawsuits against State Farm.

After reviewing those claims, the company will be required to make new offers. Any disputes will be heard by an arbitrator whose decision would be binding.

Hood said State Farm must pay a minimum of $50 million to these policyholders after their claims are reviewed. However, depending on how many policyholders qualify, the company could end up paying hundreds of millions of dollars more than that because there isn’t a cap on the amount.

The settlement comes less than two weeks after a federal jury in Gulfport awarded $2.5 million in punitive damages to a couple who sued State Farm for denying their claim after Katrina. A judge took part of that case out of jurors’ hands, ruling that State Farm is liable for $223,292 in storm damage to the Biloxi home of Norman and Genevieve Broussard.

The settlement with Hood and Scruggs’ clients leaves about 200 other lawsuits against State Farm pending in a federal court in Mississippi.

Scruggs, a Gulf Coast native whose own home in Pascagoula was destroyed by Katrina, rose to national prominence when he helped negotiate a multibillion-dollar settlement with tobacco companies in the mid-1990s.

After Katrina, his legal team sued several major insurers on behalf of hundreds of Gulf Coast policyholders, including Lott, his brother-in-law, whose Pascagoula home was demolished by the storm.

Scruggs’ legal team also sued Nationwide Mutual Insurance Co., Allstate Insurance Co., Metropolitan Property and Casualty Insurance Co. and United Services Automobile Association. Besides State Farm, Hood sued Allstate, Mississippi Farm Bureau Insurance Co., USAA and Nationwide.

In addition, Hood has investigated allegations that State Farm and other insurers have fraudulently denied claims after Katrina. A grand jury in Pascagoula began hearing testimony on those allegations, but Hood said the settlement ends his investigation.

“Many of us have friends or who have had homes and businesses on the coast that have been hammered,” Hood said. “I just pray that this will work quickly and efficiently to stabilize our insurance markets and to stabilize the economic development down on the coast.”

Scruggs and other attorneys have accused State Farm of pressuring its engineers to alter reports and change their conclusions on whether Katrina’s wind or water was responsible for damage to homes.

But the civil cases against State Farm were weakened by a series of court rulings that favored the insurance industry.

© 2013 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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