EUROPEAN INSURERS EVALUATE LIABILITY

LONDON-In light of Louisiana Attorney General Richard P. Ieyoub's naming more than 100 insurance companies in his lawsuit to recover the costs of treating tobacco-related illnesses, debate has heated up on this side of the Atlantic Ocean about how much of the claims, if any, insurers will have to bear.

Already B.A.T Industries P.L.C., a party to U.S. tobacco litigation through its Brown & Williamson Tobacco Corp. subsidiary, has said it is examining insurance policies going back decades to see if there are any grounds for making a claim.

While insurers have maintained that exclusion clauses relieve them of liability for any successful claims brought against the tobacco companies, B.A.T's decision to examine the small print of its policies has received an endorsement from an independent source.

Paul Hodges, an insurance industry analyst at Schroders Securities Ltd., has claimed in a report on the implications of U.S. tobacco litigation that "comprehensive general liability insurance coverage probably exists for a variety of tobacco-related claims."

However, other analysts aren't that certain.

John Russell, insurance industry analyst at Hoare Govett Securities Ltd., said he thinks it is unlikely tobacco-related liability claims will get as far as insurers.

In order for claims to reach insurers, it first would have to be established that liability falls on the tobacco companies, which have so far successfully defended most claims, Mr. Russell said. Then tobacco companies would have to successfully claim against their insurers.

Mr. Russell added that it seems even less likely that either of these events will come to pass after a Florida jury last week found that R.J. Reynolds Tobacco Co. was not liable in the death of a smoker.

According to Mr. Hodges, insurers are most likely to be drawn into the fray on policies written prior to the late 1960s, because up to this time the wording of exclusion clauses "appears to have been relatively weak."

However, Mr. Hodges said that after speaking to representatives of Badon & Rainer, one of the law firms assisting the Louisiana attorney general, he believes even the most recent policies with much tighter policy wordings might not be able to exclude the type of claims being brought by individual states for health care cost reimbursements.

Claims are most likely to come from CGL policies, although insurers could also be drawn in under errors and omissions and directors and officers policies, said Mr. Hodges.

Mr. Hodges says both E&O and D&O claims would result mainly from attempts to claim executive officers knew of, but ignored or hid, the potential dangers of smoking. However, he emphasized that any such claims would be only peripheral, as the real bulk of any claims could come from CGL policies.

Potential claims against insurers will come not only from the tobacco manufacturers, warns Mr. Hodges. "Most of the other entities which have been or will be implicated in third-wave litigation-the component part suppliers, public relations firms, law firms etc.-unquestionably have liability insurance," he said.

The European insurers most likely to be affected are Commercial Union P.L.C., Royal & Sun Alliance Group P.L.C., Allianz Holdings A.G., and Zurich Insurance Group, according to Mr. Hodges' report.

Ian Frater, spokesman for Commercial Union, said the company has always maintained it has only minimal involvement in tobacco coverage. He said Mr. Hodges's study fails to take account of the specific terms of cover in CU's policies or of the various exclusions, particularly exclusions for product liability. Nor did Mr. Hodges take account of the aggregate insurance limits of CU's policies, he added.

Royal & Sun Alliance limited its comments to a written statement saying the liabilities go back over many years but are subject to continuing monitoring.

A spokesman for Equitas Holdings Ltd., the company set up last year by Lloyd's of London to reinsure syndicate liabilities for 1993 and prior years, said, "We don't believe that tobacco litigation poses any great threat to Equitas."

B.A.T's research into its insurance policies was unveiled by the group's Chief Executive Martin Broughton earlier this month, when the company reported its first-quarter results.

He acknowledged that the issue of insurance availability for tobacco companies regarding liability claims is highly complex, both factually and legally, because it involves different types of cases, laws that vary from state to state, periods of many years, and insurance policies combining all sorts of policy wordings and exclusions.

Mr. Broughton declined to comment further, saying he did not want to prejudice any future legal actions.

However, Lord Cairns, B.A.T's chairman, said that while the company believes any lawsuits would ultimately have no material impact on its financial condition, "we must nevertheless brace ourselves for occasional reverses along the way, especially at the lower court level."