Tobacco litigation wars continue (August 01, 2001)

The U.S. attorney general, John Ashcroft, has announced his intention to seek settlement of the federal government’s pending multi-billion dollar lawsuit against the tobacco industry, which was initially launched in 1999 with the support of then U.S. president Bill Clinton. Claims made against the tobacco companies include provisions under the U.S. Racketeering Influenced and Corrupt Organizations Act (RICO), and date back to alleged illegal acts of public “fraud” and “deceit” committed by the tobacco industry since the 1950s.

Reports issued by the U.S. Justice Department say that the team assigned to work toward a settlement with the tobacco industry will cooperate with the Justice lawyers working on the litigation. However, any settlement discussions will be treated separately to the ongoing work of the Justice Department.

David Merner, the senior counsel with the Canadian federal government’s Department of Justice, also confirms that approximately $13 million in legal costs has been spent thus far by Ottawa in its own RICO-based lawsuit filed in the U.S. against R.J. Reynolds Tobacco Co., its subsidiary operations, as well as the Canadian Tobacco Manufacturers Council. The US$1 billion action was taken in December 1999 (following the announcement of the U.S. federal government’s lawsuit) and alleges that the tobacco company and other defendants named in the lawsuit had smuggled Canadian-manufactured tobacco products sold duty-free to U.S. distributors back into Canada without paying the necessary taxes. The suit was dismissed by a U.S. federal court judge in May of last year on grounds that the claims did not have legal jurisdiction in the U.S., which is not responsible for enforcing foreign tax disputes. Most recently, three judges of the New York Second Circuit Court of Appeals reserved their decision on the Canadian government’s appeal.

At the time of the dismissal of the Canadian lawsuit last year, the federal government had exhausted approximately $4 million in legal expenses. To date, roughly $9 million has been paid to six legal firms based in the U.S., according to the Department of Justice.

Many legal claim experts in the Canadian property and casualty insurance industry have identified tobacco-related liability exposures to be the biggest threat facing insurers since the asbestosis claims of the 1980s.