(Adds Scruggs statement) By Ed Leefeldt NEW YORK, March 19 (Reuters) - State Farm Mutual, Mississippi's largest insurer, said on Monday it has started reviewing claims by as many as 35.000 Gulf Coast residents whose homes were destroyed by Hurricane Katrina, in order to speed up the payment process. The company said it would use criteria set out in a failed settlement of a class-action lawsuit. It said the move resulted from a deal, which makes millions of additional dollars available to homeowners in three coastal counties, between the insurer and State Insurance Commissioner George Dale. "The process will put dollars into people's hands more quickly," according to a statement read by company spokesman Fraser Engerman. State Farm said it was beginning an immediate revaluation and payment program for the claims of Mississippians whose homes had been completely destroyed by the August 2005 hurricane, the most expensive storm in history. The announcement came after U.S. District Court Judge L.T. Senter in Mississippi delayed a class-action settlement between Mississippi homeowners represented by attorney Richard Scruggs and State Farm that would have resolved hundreds of claims. Senter said he was not satisfied that all cases would be covered by the settlement and treated fairly. "When I learned that the proposed class-action settlement had stalled, I felt it presented an opportunity to negotiate with State Farm to bring closure for coastal homeowners," Dale said. Dale said that State Farm could potentially reexamine and negotiate more than 35,000 claims, using the proposed class action as a "starting point." Under that settlement, State Farm would have paid Mississippi coastal homeowners at least $50 million and possibly up to $500 million. Mississippi Governor Haley Barbour said he supported the settlement. "This ... should allow hundreds if not thousands of Mississippi homeowners to receive insurance payments from State Farm after these claims are readjusted," Barbour said. Participation by homeowners, renters and commercial properties would be voluntary, Dale said. 'UNNECESSARY COURT BATTLES' Dale has said he wanted to see the claims resolved rather than losing insurers from the state. After the class-action settlement was delayed, State Farm refused to write new homeowner policies in Mississippi and Scruggs, who represented the homeowners, withdrew his request for court approval of the settlement. Scruggs said in a statement that Dale's proposal "has no teeth in it." "Without court supervision, State Farm has no incentive to be fair with the policyholders," said the class action attorney. Scruggs did not explain why he withdrew from the court settlement. Dale said he was also talking to other insurers about expediting the handling of their claims and could make further announcements in coming weeks. Homeowners argue that their properties were destroyed by wind. Private insurers such as State Farm, Allstate Corp. <ALL.N> and Nationwide <NFS.N> generally cover such losses. The insurers have said "storm surge," a 30-foot wall of water thrown up by Katrina, swept the homes away. Water damage is normally covered by a federal flood insurance program.
