U.K. HEALTH OFFICIALS CONSIDER ACTION AGAINST TOBACCO FIRMS

LONDON-The proposed $368.5 billion settlement between the tobacco industry and state attorneys general in the United States is attracting the attention of health authorities in the United Kingdom.

At least one tobacco company, however, contends that the settlement will not be duplicated elsewhere.

"This is a U.S. solution to a U.S. problem," said a spokesman for B.A.T Industries P.L.C., one of the tobacco companies involved in the proposed settlement.

At the same time, liability insurers in London are not expressing undue concern about their potential liability under the proposed settlement.

Immediately following news on June 20 of the proposed settlement in the United States between state attorneys general and the tobacco industry (BI, June 23), several U.K. health authorities started looking into an attempt to recoup from tobacco companies the costs they have incurred over the years treating patients with smoking-related illnesses. Within a week, the authorities agreed to work together on the issue.

The British Medical Assn., an organization representing all medical practitioners in the United Kingdom, last week issued a statement supporting the principle of "poisoner pays." Tobacco companies should pay for the damage caused by cigarette smoking, which annually costs the U.K. health system around (British pounds) 610 million ($1.02 billion), said the statement.

Dr. Sandy Macara, chairman of the BMA, said that he strongly supports the principle of health authorities and hospital trusts suing tobacco companies to recoup the costs of treating smoking-related diseases.

Also at the end of last week, The NHS Confederation, an association of health authorities and hospital trusts, at its annual conference in Brighton passed a motion stating "That a working group be established . . . to consider the potential contribution of the tobacco companies to the costs to the NHS of smoking-related diseases."

In addition, the confederation authorized the working group to make recommendations on the U.K. government's anti-smoking strategy.

That strategy includes a "smoking summit" of European health ministers called by British Minister of Public Health Tessa Jowell to be held in London next month.

Meanwhile, liability insurers in London are showing little concern that they will have to pay much toward the proposed settlement in the United States.

A spokesman for Equitas Ltd., the reinsurer for Lloyd's of London's pre-1993 liabilities, said, "We don't think this is going to be a really big event for us."

Tobacco-related claims were factored into the Equitas reserving model, said the spokesman, adding he is confident that the reserves are sufficient.

Tobacco exclusions were added to policies in London in the mid-1960's, at the behest of the tobacco companies, according to a spokesman for Royal & Sun Alliance Insurance Group P.L.C. The tobacco companies wanted the exclusion to allow them to conduct their own legal defenses, he said.

"If we have exposures, they are extremely limited," said the spokesman. He did add, however, that there was always the possibility of "some old policy" lurking that pre-dates the exclusion.

Royal & Sun Alliance is monitoring the situation on a worldwide basis, rather than solely focusing on the U.S. exposure, he said, but is "satisfied that we are adequately reserved for all liabilities."

Some insurance experts suggest that any policies lacking the exclusion might have been voided by the tobacco companies' decision to broker a deal directly with the state attorneys general without any insurers at the negotiating table. Those policies would have included provisions for insurers to lead any legal defense or negotiations, according to market sources.

Another possible defense by the insurance industry includes whether tobacco companies withheld from insurers information about possible health effects of smoking.

Some insurers also think the tobacco companies are unlikely to file claims against their policies because the proposed U.S. settlement includes the provision that 80% of any successful claims against insurers must be put into the settlement fund rather than retained by tobacco companies.

But Paul Hodges, an analyst with Schroders Securities Ltd. in London, has warned that the U.K. insurance industry may be underestimating its exposures. Although he agreed that the 80% rule could stave off claims against insurers, he pointed out that the inclusion of this provision in the settlement showed that state attorneys general thought tobacco companies could have valid claims against their insurers.

Insurers will not know what their potential exposures are until the settlement is ratified by Congress, and then whether tobacco companies will seek coverage.

Indeed, the spokesman for B.A.T, which also owns U.K. insurer Eagle Star Insurance Co., said that whether there was coverage, and how much, depends upon the wordings of "countless different exclusions spanning decades."

The U.S. tobacco settlement may spur more anti-smoking activity in other countries.

German politicians hope that the proposed settlement will help them to pass legislation that would limit smoking in public places in Germany, though product liability laws in Germany make it unlikely that tobacco companies would face litigation, according to Roland Sauer, a member of the German parliament.

At the same time, state governments in Australia are looking at outlawing smoking in certain public places, while local courts are expecting an increase in the number of smoking-related cases brought by Australians exposed to passive smoke.