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TOBACCO COMPANY BREAKS RANKS

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Liggett Group Inc.'s settlement of tobacco liability suits with 22 states is unlikely to be copied soon by other tobacco companies but has undermined their defenses against liability, legal experts said.

And even though one state suit added the tobacco company's insurers as defendants, tobacco liability is not expected to become a huge potential area of loss for insurers.

Liggett, the country's fifth-largest cigarette maker, reversed the tobacco industry's long-standing position that cigarettes are not harmful and agreed to assist in suits against the rest of the tobacco industry in exchange for ending all present and future litigation against the company.

In a settlement, reached with 22 state attorneys general suing to recoup the cost of state-funded medical care for smoking-related illnesses, Liggett admitted that cigarettes are both harmful and addictive and that it has marketed cigarettes to teenagers.

The company will put a warning label on its cigarettes saying "Smoking is addictive." In addition, the company will pay 25% of its pretax profits for the next 25 years into a fund for the states which can be used to reimburse their medical costs and pay for smoking awareness programs. Additionally, Liggett's employees will cooperate and testify on behalf of the attorneys general against the other tobacco companies. Because Liggett has not been profitable, attorneys general do not expect the company to make any monetary contributions.

"It should be viewed as a settlement that provides access to documents, witnesses and provides admissions," said Michael Ciresi, an attorney with Robins, Kaplan, Miller & Ciresi in Minneapolis, which represents the state of Minnesota.

Perhaps most importantly, the company will release documents produced both internally and in conjunction with other tobacco companies going back decades. Attorneys general plan to use these documents in pursuing their claims against other cigarette manufacturers.

Separately, Liggett won approval to settle a class-action suit pending in an Alabama state court.

Liggett officials could not be reached for comment.

Andy Berly, a partner with the Charleston, S.C., firm of Ness, Motley, Loadholt, Richardson & Poole, who represents a number of the attorneys general, said he can't predict how the other tobacco companies will respond to the settlement "because of their unreasonable behavior in the past."

But, he said with the defection of Liggett, the other companies' position is weakened. "If they had any sense, now is the time to get reasonable and work out a general resolution," he said. "Now they have a fellow defendant who has broken ranks and admitted all they have denied. It will devastate them."

One expert on class-action suits said the other tobacco companies can't make a similar settlement as Liggett. John Coffee, a law professor at Columbia University Law School in New York, said the Liggett settlement established a limited fund of money and also prevents people from opting out of the settlement to pursue their own suits.

Liggett can attempt such a settlement because of its relatively small size and lack of resources, Mr. Coffee said. The other tobacco companies are too large to do this, because they cannot make the claim, as Liggett did, that they can only afford a limited fund, he said. "Liggett is a minnow compared to the other whales."

He added, however, that settlement funds without opt-outs have not been approved by the U.S. Supreme Court.

Bernard London, partner in the New York product liability defense firm of London Fischer, said the settlement is "troublesome" to the other tobacco companies. He said admissions made by Liggett that cigarettes are addictive and harmful and were marketed to minors might be imputed to other tobacco companies because of "a unity of interest" that exists because the tobacco companies signed a joint defense agreement.

Philip Morris, R.J. Reynolds Tobacco Co., Brown & Williamson Tobacco Corp. and Lorillard Tobacco Co. have challenged Liggett's intention to turn over documents that detail discussions with others in the industry. Those companies have obtained from a state court in Winston-Salem, N.C., a temporary restraining order barring such disclosures.

Diane Cooley, a Washington-based plaintiffs attorney with the firm Coale & Van Susteren, said settlements by other tobacco companies could depend on what's in the documents that Liggett has agreed to release. "The other defendants are standing firm and are going to court to block release of the documents. It depends in part on whether we get them and what they show. I think we're going to get them."

But waves of litigation might not begin "until you get a couple of wins with good amounts of money that are sustained," said Stanley Levy, partner with Levy, Phillips & Konigsberg in New York, a mass tort plaintiffs firm.

It's unclear how the settlement, which allows Liggett to continue to make a product it admits is dangerous, will impact similar product liability cases, said Edward L. Sweda, senior attorney at the Tobacco Products Liability Project based at Northeastern University Law School in Boston.

Cigarettes are unusual in that they kill when used as the manufacturer intended, Mr. Sweda explained. In addition, the industry apparently has conspired for more than 40 years to lie about the addictive nature of their product, he said.

An agreement that bars suits against Liggett may not stop plaintiffs from trying, Mr. Sweda noted. "I would imagine that people who come down with (smoking-related illnesses) will try and find some way around it."

Whether the agreement can actually prevent future lawsuits by attorneys who may try to find a way around it "is a tough question," Ms. Cooley said. "If it's properly drafted, I suppose there won't be a way around it."

Philip Morris Cos. said in a statement that the Liggett settlement "has nothing to do with the rest of the industry, and it changes nothing."

Besides the settlements, Louisiana Attorney General Richard P. Ieyoub earlier this month added more than 100 insurance companies as defendants to that state's suit to recover health care costs from tobacco makers.

The complaint names insurers that wrote 750 general liability policies from 1950 to 1997.

The complaint "provides a vehicle in which the state may obtain documents provided by the tobacco industry to its insurers," Mr. Ieyoub said in a statement. "Having these documents will significantly strengthen our case."

The attorney general's filing is serious "because of the amount of potential dollars involved and the open-ended nature that a positive verdict for the state of Louisiana would cause," said a spokesman for the Insurance Information Institute in New York.

Tobacco companies have not had coverage for product liability claims since the surgeon general mandated health warnings on cigarette packages in the 1960s, the spokesman added. "No tobacco company has requested that insurance pick up the bill for this."

Despite Mr. Ieyoub's suit, the London-based insurance community is confident that the Liggett settlement won't affect them significantly, mainly because they believe their exposure to U.S. tobacco-related claims is minimal.

They cite two main reasons. First, many insurers began excluding tobacco-related liability coverage in their policies in the early 1960s after the U.S. Surgeon General first acknowledged that smoking could damage health. Secondly, the apparent admission by Liggett that smoking is addictive could justify insurers' refusing to pay a claim on the grounds that the insured had prior knowledge that damage could be caused.

In addition, some of the insurers that would have had the greatest exposures are in runoff. Equitas Ltd., the company set up last year to reinsure claims against Lloyd's of London syndicates for 1992 and prior years, believes it has minimal exposure, a spokesman said.