UPDATE 3-State Farm halts new homeowners insurance in Miss.

(Adds comments by Richard Scruggs and Jim Hood)

By Ed Leefeldt

NEW YORK, Feb 14 (Reuters) - State Farm Mutual Automobile Insurance Co. said it will stop writing new policies for homeowners and businesses in Mississippi following a legal battle over damage claims there from 2005's Hurricane Katrina.

"It is no longer prudent for us to take on additional risk in a legal and business environment that is becoming more unpredictable," Bob Trippel, senior vice president of the largest home insurer in the United States, said in a statement on Wednesday.

State Farm joins other insurers -- including Allstate Corp. (ALL.N), its biggest national competitor -- which are cutting back in coastal areas. Among them are American International Group Inc. (AIG.N), the world's largest insurer, and Nationwide Mutual, the parent company of Nationwide Financial Services Inc. NFS.N.

One industry expert said the avalanche of legal claims State Farm faced following a controversy over whether homes were devastated by floods, for which they weren't insured, or wind, for which they were, may have been the deciding factor.

"Hurricanes can be insured against, but litigation can't," said Robert Hartwig, head of the Insurance Information Institute, which provides insurance statistics. "Those costs are extremely high."

State Farm currently insures more than 30 percent of the homeowners in Mississippi. It said it would continue to serve current policyholders and write new auto insurance business.

"Current legal and business environments ... are becoming untenable," said Trippel.