GULFPORT (AP) — A landmark legal settlement with State Farm Fire & Casualty Co. promises to jump-start the rebuilding process for thousands of Mississippi homeowners devastated by Hurricane Katrina, but critics warn the deal could hurt many of the state’s Gulf Coast residents.That’s because the multi-million-dollar accord threatens to make the hurricane-ravaged coast an even less attractive market for major insurers that already are reluctant to renew policies or write new coverage in the storm’s aftermath, industry experts said yesterday.

Hundreds of Mississippi homeowners sued State Farm and other insurers for refusing to pay for damage from Katrina’s storm surge, which the companies say isn’t covered by their standard homeowner policies.

On Tuesday, however, Bloomington, Ill.-based State Farm agreed to settle more than 600 of those suits and reopen and pay thousands of other claims it denied after the August 29, 2005, storm.

The settlement resolves a lawsuit that Mississippi Attorney General Jim Hood filed against State Farm. The deal, part of which must be approved by a federal judge, also ends Hood’s criminal investigation into allegations that the insurer defrauded policyholders.

State Farm will pay about $80 million to 639 policyholders who sued the company. The company also agreed to pay at least $50 million — but possibly hundreds of millions more — to roughly 35,000 policyholders who haven’t sued the company but will have their claims reopened.

Robert Hartwig, president and chief economist at the industry-financed Insurance Information Institute in New York, said the settlement adds another dose of uncertainty to Mississippi’s post-Katrina insurance market.

“How contracts are going to be enforced in Mississippi is unclear. It’s an open question,” Hartwig said.

Mississippi Insurance Commissioner George Dale said he tried in vain to secure a promise from State Farm that the settlement wouldn’t be factored into any future rate increases in Mississippi.

Dale also said he wasn’t certain how the deal will affect the availability and affordability of insurance on the coast, where tens of thousands of homes were damaged or destroyed.

“We’re a long way from seeing how this is going to shuffle out,” he said. “I hope the long-range effects are positive.”

But Joseph Annotti, spokesman for the Property Casualty Insurers Association of America, was sceptical of the deal. “At least part of the message is that you don’t necessarily need the right insurance policies to get the right coverage. You just need a good lawyer,” he said.

William Merlin, a Tampa, Fla.-based lawyer who represents 85 State Farm policyholders who aren’t part of the settlement, faulted Hood for allowing the company to “buy its way out” of a criminal investigation.