JACKSON, Miss. - With an agreement settling allegations that State Farm Fire and Casualty Co. unfairly treated its customers after 2005's Hurricane Katrina still not reached, Mississippi Attorney General Jim Hood on Monday charged the company with breaching the terms of a settlement that was rejected by a federal judge.

Hood says State Farm has violated the terms of a contract with Hood by not making "an offer of settlement to the policyholder based upon criteria and guidelines approved by the U.S. District Court for the Southern District of Mississippi," leading to the bad faith breach of agreement complaint filed in the Circuit Court of Hinds County.

"Once they reach an agreement with the State, they have a duty to follow through," Hood said at a press conference.

State Farm was one of five insurance companies Hood filed suit against alleging a lack of coverage following Hurricane Katrina. Hood said the companies wrongfully represented the amount of water damage to some homes because flood damage, covered by the National Flood Insurance Program, is excluded from their policies.

The two sides appeared to have settled in January when State Farm agreed to terms that could have cost them at least $500 million, Hood estimated. However, Judge L.T. Senter rejected parts of the settlement.

Oregon insurance attorney David Rossmiller, a partner at Dunn Carney who has been analyzing the Gulf Coast's insurance situation for Legal Newsline, said Hood has his work cut out for him.

"It's tough to sue somebody for breach of contract when there's a reason that prevented them from performing the agreement," said Rossmiller, whose blog can be found here.

"In this case, the reason is about as good as it gets -- a federal judge stopped State Farm from performing the agreement. That's an impossibility defense... I think that's the defense State Farm will use, and it is a hard thing to get around."

The settlement was basically broken into two groups -- 640 policyholders who sued their insurance company and 35,000 who hadn't but still could.

Senter worried that State Farm had too much control of the arbitration process in which policyholders and State Farm would participate if the policyholder rejected State Farm's initial offering, an automatic 50 percent of the structure's value according to the policy.

Senter's rejection of the settlement did not stop the 640 of those who had already attached their names to the suit from being given their money by State Farm -- approximately $80 million. But the second group was more problematic to Senter. He did not feel it could be certified as a class because policyholders' homes were affected in different ways by the hurricane. Class certification motions have since been dropped.

Since the settlement was initially rejected, State Farm has decided to stop writing new homeowners and commercial policies in the state, saying the legal and political climates have become too unstable. Hood responded by threatening to reopen his criminal investigation into the company's post-Katrina practices, and is urging national insurance reform in Congress.

State Farm has reached an agreement with state Insurance Commissioner George Dale to revisit previously denied claims, though Hood says State Farm has made only 300 new offers. Hood added that the money paid under that program would still be credited in a future settlement.

The two sides met Wednesday, but nothing was resolved. Hood said he State Farm was given a proposal that he filed in March that met the criteria and guidelines set forth by Senter, but the company did not agree.

In a letter to Hood, Kim Brunner, the Executive Vice President, Secretary, and General Counsel for State Farm, wrote:

"As we discussed during our meeting, there is no proposal we can conceive of which would enhance our extensive efforts already under way to resolve outstanding claims, through such means as the outreach program now proceeding under the auspices of the Mississippi Insurance Department (MID), and our ongoing settlement discussions with plaintiffs' counsel in pending cases. While yet another class action, if it could be certified (a questionable proposition), may generate fees for lawyers, it will do little good for the people of Mississippi."

Hood responded Monday, claiming "They have lost a tremendous amount of trust that the company had developed over the years. It shocks me that a company this large had a written agreement with the state in a high-profile case like this and backed out of it."

Hood is seeking compensatory and punitive damages. He claims Senter has written that he is prepared to approve the settlement if his concerns are fixed, but "State Farm has just stopped and refused. They ought to be ashamed, treating their policyholders like this."

Senter, though, in dismissing the Woullard class action suit, wrote that State Farm's agreement with Dale partially meets terms of the original settlement.

"State Farm is presently engaged in an effort to resolve its policyholders' claims under a program negotiated with the Mississippi Department of Insurance. This program follows, in part, the terms of the settlement agreement originally proposed..." he wrote.

Senter also said the agreement fell short of addressing some of the problems he had with the settlement.