The US state of Mississippi has taken giant insurer State Farm to court over alleged failure to pay out thousands of claims stemming from losses attributed to Hurricane Katrina.

Attorney-General Jim Hood says he was prompted by the company’s inaction to settle with more than 30,000 policyholders more than two years after the disaster flooded New Orleans and many parts of Mississippi.

The civil suit, which seeks compensatory and punitive damages, ends an uneasy truce brokered between the parties in January. State Farm agreed to settle some claims in exchange for Mr Hood striking the company’s name from a broader 2005 civil suit against several insurance companies.

State Farm’s decision to cease writing new homeowner or commercial property business in Mississippi is also believed to have angered Mr Hood.

But State Farm Executive Vice President Kim Brunner says the decision to sue the company will stretch claim times even further. He said State Farm has settled more than $US3.1 billion ($3.7 billion) in Katrina claims – more than one-third to Mississippi residents.

More than 99% of all State Farm’s Katrina claims have been settled, Mr Brunner said.

“The Attorney-General’s actions only further highlight the unpredictable legal and business environment that led to our February decision to suspend writing any new homeowners or commercial property business within the state of Mississippi,” he said.