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Whether or not Louisiana recovers funds from insurers named as defendants in the state's suit against tobacco companies, all litigating states could gain simply from insurers' efforts to defend themselves.

Information that insurers gather to show why coverage is not triggered in Louisiana ultimately may strengthen states' cases against the cigarette makers elsewhere.

Earlier this month, Louisiana Attorney General Richard Ieyoub added tobacco company insurers as defendants to the state's suit to recover the costs of medical care for tobacco-related illnesses (BI, March 24). The Louisiana suit names more than 100 insurance companies, including Travelers/Aetna Property Casualty Corp., Hartford Group Inc., American International Group Inc. and Liberty Mutual Insurance Co., that wrote hundreds of policies dating back to the 1940s for tobacco companies.

"It makes a much bigger fund for the states to get compensation from," said Drew Ranier, an attorney with Badon & Ranier in Lake Charles, La., which is the lead counsel for Louisiana's attorney general. "It provides financial security if and when we obtain a judgment from the tobacco industry."

But the state's success in getting money from the insurers is far from certain.

Eric Simpson, senior vp at A.M. Best Co. in Oldwick, N.J., said the suits don't pose a significant concern for the insurers.

"I don't see it blossoming into a major asbestos or environmental situation," he said.

Since 1966, the insurance companies have inserted "a pretty airtight" tobacco-liability exclusion into their general liability policies, Mr. Simpson said. Because of these, "they appear to be free of liability concerns."

But Mr. Ranier said these airtight exclusions might have a leak. The exclusions as drafted specifically mention personal-injury cases. "That exclusion does not fit the attorney general's case," he said.

As for those policies written prior to 1966, Mr. Simpson said the insurers can defend them successfully by arguing the tobacco companies suppressed known tobacco risks and knowingly created risks to smokers.

The expectation that insurers would assert this defense, though, is part of the Louisiana attorney general's strategy and the reason the attorney general said the move "opens a second front against the tobacco companies."

To succeed with this defense, the insurance companies must obtain proof of the tobacco industry's knowledge of the health hazards of cigarettes. And if they can get this, it also will land in the laps of the attorneys general.

"It's a win-win situation for the states," Mr. Ranier said.

Either the insurance companies find incriminating evidence against their policyholders or the evidence eludes them and they pay money to Louisiana, he said.

Few other states, however, can have suits as elegant as that of Louisiana. Only Louisiana, New Hampshire and Wisconsin have "direct action" statutes allowing third parties to sue insurance companies, Mr. Ranier said.

The state of Wisconsin would not comment on its strategy or Louisiana's.

An AIG spokesman said the insurer would not comment on the suit. The Hartford's spokeswoman said it could not comment because the insurer had not yet been served with the suit. The other insurers did not return calls.

Meanwhile, a proposed settlement between Liggett Group Inc. with 22 state attorneys general is obscuring the tobacco company's settlement of a class-action suit in Alabama.

Liggett, the country's fifth-largest tobacco company, settled a class-action suit in Alabama state court that ends all present and future suits against the company.

The Alabama settlement calls for the company to pay 25% of pretax profits for 25 years into a fund for distribution to individuals. The same terms were set for the financial portion of the settlement with the 22 states. In exchange, it ends all present and future claims against the company, and together with the settlement reached with the attorneys general, resolves all litigation against Liggett. Only the 28 states that have yet to sue the tobacco company can bring future claims.

"It was an attempt to negotiate a limited fund which will produce complete immunity for Liggett," said John Coffee, a professor at Columbia University Law School.

Preliminary approval has been granted, but final approval won't come until after a July 11 hearing in the Mobile, Ala., courtroom of Judge Braxton Kittrell. But that approval is far from assured.

Not everyone suing the tobacco companies applauds the Alabama settlement, and some legal experts say it won't stand up to a challenge.

Michael Ciresi, an attorney with Robins, Kaplan, Miller & Ciresi in Minneapolis, said both of his clients suing the tobacco industry, Blue Cross & Blue Shield of Minnesota and the state of Minnesota, will actively oppose the settlement.

Two aspects of the settlement give rise to their opposition.

First, the settlement does not permit claimants to opt out and bring their own suits. This forces all people with suits against Liggett to accept the settlement's terms, whether they agree or not. "We do not agree with cram-down class-action settlements," Mr. Ciresi said.

Second, the settlement binds all future claimants to the settlement.

"If you don't know you are a claimant, it makes it hard to say you oppose the settlement," said Arthur Bryant, executive director of Trial Lawyers for the Public Justice, a Washington public-interest law firm. Mr. Bryant added that to be certified as a class, members must represent all people who might bring suit. But future claimants might not have the same interests as present claimants, making it inappropriate to bind them to the settlement, he said.

The lawyers also doubt whether the type of settlement used can survive a challenge. Mr. Coffee said he doubts the settlement will survive because neither settlements that bind future claimants nor those that bar opt-outs have been approved by the U.S. Supreme Court.

Mr. Bryant agrees. "It raises serious constitutional questions" he said.

"It offends any sense of due process," added Mr. Ciresi.

The settlement's survival could depend on how the U.S. Supreme Court rules in the case of Amchem Products Inc. et al. vs. George Windsor et al.

In Amchem, the Supreme Court has been asked to review an appeals court ruling overturning a settlement of asbestos class-action claims (BI, Feb. 24). The high court will address the legality of binding future claimants to a global settlement.

What the Supreme Court says in the Amchem case "massively affects the validity of this settlement," Mr. Bryant said.

The Amchem appeal was argued before the Supreme Court in February, and a decision is expected before the term ends in June.