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Insurers may reimburse tobacco giants' payouts

By Bill Rigby

LONDON(Reuters) - European and U.S. insurance companies may be forced to reimburse tobacco companies paying out billions of dollars in settlements and compensation claims in the United States, an industry analyst said.

Paul Hodges of investment bank Schroders said in a report that many industry giants had provided insurance to tobacco manufacturers that either specifically covered, or did not fully exclude, the health liability risks associated with smoking.

The report named some of the companies involved as Royal & Sun Alliance, CGU, Lloyd's of London , Zurich Financial Services, Liberty Mutual and The St. Paul Companies.

It said it was clearly in tobacco manufacturers' interests to seek reimbursement from their insurers as claims against them mount.

The report shows that a number of insurance policies specifically covering health liability held by tobacco companies had no aggregate limits, and were written on an ``occurrence'' basis, meaning that policyholders can make claims long after the policies expire.

The report includes copies of policies underwritten by insurers St. Paul Fire & Marine, Liberty Mutual and The Home Insurance Co., now owned by Zurich Financial Services, which show limits of up to $10 million per occurrence, which would mean insurers could be liable to pay up to that amount for each individual who makes a successful claim for compensation from a tobacco company holding a valid policy.

Some insurers and analysts, however, said Friday that tobacco claims posed no great threat to insurers as the tobacco companies would have to hand over control of the defence of lawsuits to insurers if they made claims -- which one London analyst said would be ``unpalatable and impractical'' for tobacco companies.

Spokesmen from U.K. insurer Royal & Sun Alliance and Equitas -- the reinsurance vehicle for Lloyd's of London's pre-1993 losses -- both said Friday that their companies faced no significant liability from tobacco claims.

One London insurer said he was not aware of any insurance claim made on policies in the United States or elsewhere relating to tobacco, and said he did not expect any to be made in the future.

Tobacco companies may have to pay out as much as $500 billion over the next 25 years after four tobacco companies agreed in 1997 to pay more than $200 billion to 46 U.S. states, and class-action lawsuits seeking compensation for individual smokers in other states are still under way.

Thursday, a Florida jury ruled that smoking causes diseases such as lung cancer and that tobacco companies that had hidden the risks would have to pay unspecified damages.

The defendants in the case included R.J. Reynolds Tobacco Co., Philip Morris Cos. Inc., Loews Corp.'s Lorillard Tobacco Co. Inc., Brooke Group Ltd.'s Liggett Group Inc., and the Brown & Williamson unit of British American Tobacco Plc.

Hodges said the 1997 settlement did not stop tobacco companies from recovering all settlement and compensation payment costs from their insurers.

The report said ``a large volume of comprehensive general liability insurance coverage was sold to North American tobacco manufacturers using exclusions of dubious efficacy,'' and older policies revealed ``an absence of relevant exclusions, poor definitions and ambiguous policy limits.''

In addition, the report said that a number of insurers sold explicit tobacco health liability coverage to tobacco companies between 1966 and 1996 -- after the introduction of health warnings on cigarette packets -- which, the report said, meant insurers recognised the health risk of tobacco and explicitly insured that risk.

It said there was compelling evidence of substantial insurance coverage for tobacco companies to claim against.

^REUTERS@ Reut16:12 07-09-99


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