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WASHINGTON-A long-awaited settlement proposal between the tobacco industry and a group of state attorneys general would free the industry from the specter of new class-action lawsuits at a price of $360 billion to be paid over the next 25 years.
The proposed settlement, announced late Friday afternoon at a Washington hotel, still must be approved by Congress.
The deal would not provide cigarette makers with absolute immunity from lawsuits because individual suits could continue. But the proposal would settle the 40 suits brought by states against tobacco companies that seek to recover state money spent to treat tobacco-related illnesses.
The actual text of the agreement was not immediately available, so details of exactly how the various payments made by tobacco companies would be structured to compensate individuals and states remained unclear. But according to a six-page outline distributed when the settlement plan was announced, other major provisions of the deal would include:
An up-front industry payment of $10 billion, of which $7 billion would go to the states that filed suit, while $3 billion would be paid to the federal Department of Health and Human Resources and unspecified smoking-related programs.
Additional annual payments of up to $15 billion over 25 years.
The payment of $50 billion over 25 years in punitive damages. Half of that money would be used by the states to fund health care for uninsured children. The other $25 billion would be earmarked for a special trust fund for health care, the specifics of which would be determined by a presidential commission.
Attorneys' fees related to negotiating the settlement would be paid separately by tobacco companies rather than out of the settlement funds.
Individuals still would be permitted to sue tobacco companies.
Private lawsuits that already have been initiated also would not be affected.
From a fund of up to $5 billion a year, individuals would be able to file claims to compensate them for lost wages, pain and suffering and "future punitive damages."
The tobacco industry would agree to drop all pending lawsuits regarding advertising and regulation by the Food and Drug Administration, ingredients disclosure, environmental tobacco smoke and any lawsuits against "whistle blowers."
The tobacco companies also agreed to new restrictions on advertising, a ban on vending machine sales, new package warnings and regulation by the FDA.
Mississippi Attorney General Mike Moore, who has taken the lead in the states' fight against cigarette makers, said he and his fellow attorneys general had wanted to punish the tobacco industry for its past deeds, and therefore extracted the additional $60 billion in payments above the original target of roughly $300 billion over the same period.
"This agreement will do more for the public health of our nation than all of our lawsuits combined-even if we had won all our individual suits. If enacted by Congress, it will save more lives than any public health initiative in memory," Mr. Moore said in a statement released by the state attorneys general.
However, getting Congress to agree to the settlement is not guaranteed, noted consumer advocate Ralph Nader, as he blasted the agreement moments before it was announced. Speaking from the same podium Mr. Moore and the other attorneys general would subsequently crowd behind, Mr. Nader pronounced the agreement "dead on arrival. It's going nowhere in Congress."
"This is a very premature rush to judgment, propelled heavily by a July 7 court date in Mississippi," said Mr. Nader, referring to the date that Mississippi's lawsuit to recover Medicaid costs spent for smoking related illnesses is scheduled to begin.
Mr. Nader predicted both conservative and liberal members of Congress would oppose the deal, though for different reasons. He predicted that "the deal will be so altered you will not recognize it by the time it gets to Congress."
"One has to be very cautious about dotting the 'i's' and crossing the 't's ", said veteran antismoking activist Scott Ballin. "I don't think it's the final deal, the final settlement."
Another antismoking force, the Washington-based National Center for Tobacco-Free Kids, praised the agreement in a statement as having "the potential to achieve more than could be realistically gained by any other means. This agreement can be a historic turning point in the decades-old fight to protect children from tobacco and bring about a fundamental change in the role of tobacco and the tobacco industry in our lives." But the center's statement stressed that "this is not the end of the tobacco wars."
Edward Sweda, senior attorney at the Tobacco Products Liability Project at Northeastern University Law School in Boston, said the settlement "conveys to the industry that it can continue, not as business as usual, but can continue to get cigarettes into the public domain."
One state attorney general involved in the negotiations played up states' gains in the settlement.
"We have accomplished much more through this settlement than we ever could through the tort system," said Richard Ieyoub, attorney general of Louisiana, in a press conference late Friday.
Mr. Ieyoub also said the settlement provides "no civil or criminal immunity for any tobacco company or executive."
Mr. Ieyoub led a committee of state attorneys general who discussed whether to pursue contributions from cigarette makers' insurers. Louisiana named 100 insurers in its lawsuit against the cigarette companies.
Although insurers were not targeted by the states, Mr. Ieyoub noted that the agreement calls for the tobacco companies to turn over 80% of any funds they recover from their insurers.
However, insurance industry observers say the proposed settlement is not expected to have an impact on insurers.
Alan Levin, managing director at Standard & Poors Corp., in New York, said he does not think that insurance companies are liable to provide coverage for the proposed settlement.
"It's somewhat questionable whether the tobacco companies can make claims against the insurance industry," he said.
Since 1966, the insurance industry has inserted an absolute tobacco exclusion in the liability policies sold to tobacco manufacturers, he explained.
As for any claims-made coverage under pre-1966 policies, Mr. Levin said efforts to obtain coverage under those policies probably won't succeed, either. "There's a lot of issues that have to be dealt with before the insurance companies can pay any claims," he said.
What will be of greater concern to insurance companies, Mr. Levin said, is their exposure to lawsuits filed against companies that helped advertise or distribute cigarettes. Liability insurance policies for these companies do not contain the absolute tobacco exclusion.
"There is more of a potential for insurance companies to be impacted by that," he said.
A spokesman for the American Insurance Assn. in Washington agreed that the proposed settlement does not create an exposure for the insurance industry.
"We believe the coverage exclusions are very strong and will hold up," he said. "It's a settlement for the tobacco companies to own up to their liability.'