updated 6/11/2007 5:24:23 PM ET 2007-06-11T21:24:23

Mississippi Attorney General Jim Hood sued State Farm Fire and Casualty Co. on Monday, claiming the company failed to honor an agreement for a mass settlement of claims over Hurricane Katrina damage.

In January, Hood agreed to drop State Farm from a lawsuit his office filed against several insurance companies for refusing to cover damage to homes from Katrina's storm surge.

Hood did that after State Farm settled with lawyers for homeowners on a $50 million payout to about 35,000 southern Mississippi policyholders who hadn't sued the company but could have their claims reopened.

But the pact fell apart after a federal judge refused to endorse it. Hood has said he didn't negotiate the terms of that settlement and shared the judge's concerns about the deal.

The state is seeking compensatory and punitive damages against the Bloomington, Ill.-based insurer for an alleged breach of contract. Hood's office filed the suit Monday in Hinds County Circuit Court.

Hood did not rule out reopening a criminal investigation that he ended in January as part of the agreement. Hood's office was investigating allegations that the company had fraudulently denied policyholder claims after Katrina.

During a news conference Monday, Hood said the new lawsuit should help thousands of Gulf Coast policyholders, many of whom he says are still living in government-issued trailers because of State Farm's refusal to pay claims.

"They ought to be ashamed of treating their policyholders like this," he said.

State Farm spokesman Mike Fernandez said Hood's lawsuit suggests he is "more interested in making headlines in an election year than in making headway for the people of Mississippi."

"You have to wonder," Fernandez said in a written statement, "what would motivate Attorney General Hood to disrupt an agreement that mirrors the one he was 'happy to announce' on Jan. 23 and asked other insurers to emulate as 'a step to recovery' two days later?"

After the January settlement agreement fell apart, State Farm reached a separate but similar deal with state Insurance Commissioner George Dale. That pact also calls for the company to reopen and possibly pay tens of thousands of claims, but it isn't subject to judicial oversight.

State Farm and lawyers for policyholders had presented the original agreement for a mass settlement to U.S. District Judge L.T. Senter Jr., who is presiding over hundreds of lawsuits that Mississippi homeowners filed against their insurers after the Aug. 29, 2005, storm.

Senter refused to sign off on the deal, however, saying he needed more information about how many policyholders would benefit from the mass settlement and how much money would be guaranteed.

Hood said Monday that State Farm should have provided Senter with more specific information to live up to the terms of the agreement, which says the company should make "an offer of settlement to the policy holder based upon criteria and guidelines approved by" a federal judge.

"They have a duty to follow through," Hood said. "The court is open to approve it. State Farm has just refused."

A State Farm spokesman said Monday that the company's settlement with Dale is "moving forward." Hood said his lawsuit shouldn't affect Dale's program.

State Farm says thousands of policyholders in south Mississippi have asked for their claims to be reevaluated through the settlement agreement with Dale's office. The company says it already has offered to pay more than $10 million to eligible policyholders.

However, Hood said only about 300 people have participated in the program, adding that those who chose to take that route could continue to do so.

___

Associated Press writer Michael Kunzelman in New Orleans contributed to this report.

Copyright 2007 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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