A State Farm spokesperson said today that the insurer was"disappointed" to learn that Mississippi Attorney General Jim Hoodplans to sue the firm over a failed class action settlement forpolicyholders with Hurricane Katrina damage claims.

The firm believes it lived up to its legal requirements, saidPhil Supple speaking for State Farm.

He said he understood that Mr. Hood is finalizing a draft of abreach of contract suit, "claiming that we did not adhere to theterms of the agreement."

The proposed class settlement was tossed out in March by U.S.District Court Judge L.T. Senter Jr. in Jackson, Miss.

As originally announced in January, the agreement would haveapplied to homeowners in three coastal Mississippi counties and Mr.Hood estimated the insurer might have to pay up to $500 million to1,000 homeowners.

Most of the disputed claims involved damage that the insurerinitially rejected saying they were barred by policy languageexcluding damage from flooding or storm surge.

The settlement talks in addition to Mr. Hood had included acombine of attorneys, the Scruggs Katrina Group that representedhundreds of policyholders. The judge initially rejected thesettlement saying it was not "fair, just, balanced orreasonable."

After the judge held a hearing on its provisions, the ScruggsKatrina Group said they could see he was not inclined to approve itand they dropped their effort.

Mr. Supple said the proposed agreement "makes clear that a claimreevaluation would be submitted to the federal court. That plan wassubmitted and we feel that fulfills our legal obligation to theproposed settlement.

"We are disappointed Mr. Hood would take this action."

He said the company was going ahead with an agreement it workedout with Mississippi Insurance Commissioner George Dale toreevaluate Hurricane Katrina claims, which he said "mirrors thesettlement that was before Judge Senter."

Mr. Hood, when the proposed class action settlement wasannounced in January, dropped State Farm as defendant in a civilaction and ended a grand jury probe of the insurer's claimshandling.

He did not immediately respond to a call for comment, but hetold the Associated Press that the insurer's agreement with Mr.Dale "doesn't have all the protections for the insureds that thejudge's requirements would have." The attorney general also wasquoted as saying, "The grand jury is still there andavailable."