Health Plans in 38 States Sue Tobacco Firms

Blue Cross and Blue Shield plans in 38 states, including California, launched a major new assault Wednesday on Big Tobacco, filing a series of lawsuits accusing cigarette makers of conspiring to hook consumers on a deadly habit and raising health care costs for both smokers and nonsmokers.

The insurance plans, with their 25 million subscribers nationwide, represent a potent new force in the legal war over smoking, already the most immense and costly in the history of civil litigation.

Tobacco industry officials immediately denounced the suits, described by R.J. Reynolds as “simply the latest example of groups lining up to get on board what they perceive to be the tobacco gravy train.” Citing favorable rulings recently in three other big cases, industry officials predicted the latest suits, too, will bite the dust.

But coming a day after the announcement that Liggett Group is cooperating with the Justice Department’s criminal probe of the tobacco industry, the filing of the lawsuits was more bad news for cigarette makers.

If successful, the claims could result in billions of dollars in damages. Whatever the outcome, the cases will increase the industry’s already huge legal bills while possibly stiffening resistance in Congress to granting legal protections to the industry as part of anti-smoking legislation.

The Blue plans operate as separate companies--both for-profit and nonprofit--providing health insurance to individuals and groups. Many of those covered are workers whose employers purchase medical benefits and usually contribute part of the premium cost.

Some of the plans charge higher rates for smokers, recovering extra costs associated with their health care, but others do not. “You can never fully take into account the costs of what smoking has done to health care,” said John Salmon, one of the lawyers involved in the lawsuits.

Calling themselves the Coalition for Tobacco Responsibility, the health plans split into three groups to file the lawsuits in federal district courts in New York, Chicago and Seattle. The suits seek damages for fraud, misrepresentation, and violations of federal racketeering and antitrust laws, as well as other alleged wrongs.

According to the lawsuits, tobacco companies concealed the addictive nature of nicotine and conspired to suppress development of less harmful cigarettes for fear of indicting their conventional brands.

In a statement issued Wednesday, the coalition said its suits were triggered in part by recently released internal documents that provide “compelling new evidence about the tobacco industry’s deliberate attempts to addict Americans to a dangerous product and to market to children to create replacement smokers.”

But some observers linked the timing of the suits to the debate in Congress over tobacco legislation and prospects that a key tobacco trial in Minnesota will end in a settlement or verdict in a matter of days.

A bill approved by the Senate Commerce Committee would raise cigarette prices at least $1.10 per pack to discourage teen smoking, reimburse health care costs and pay for health and anti-smoking initiatives. The measure, strongly opposed by the industry, would cap its payments for civil damage suits at $6.5 billion per year.

But the industry still hopes to revive the proposed tobacco peace accord--negotiated last June with state attorneys general--that would have granted more sweeping liability protections, including a ban on class actions like those just filed by the plans.

In filing the lawsuits now, “I . . . think that these guys want to get their marker down so if Congress starts divvying up money--or there is some kind of settlement--they can get part of the proceeds,” said Gary Black, a prominent industry research analyst with Sanford C. Bernstein & Co. in New York.

The lawsuits “will put more pressure on the Congress not to include any liability protections” in tobacco legislation, said Rep. Henry Waxman (D-Los Angeles), a leading tobacco foe in Congress. “Because there are Blue Cross/Blue Shield plans in every state,” lawmakers wouldn’t “want to preclude them from getting payment.”

In the Minnesota case, where the state is seeking recovery of Medicaid funds spent to treat sick smokers, co-plaintiff Blue Cross and Blue Shield of Minnesota until Wednesday was the only one of the plans to sue the industry. Although the trial, now in its fourth month, is nearing an end, representatives of the state and tobacco companies have been in settlement talks.

The plans wanted to file before their Minnesota counterpart gained a settlement or judgment to avoid appearing opportunistic, said Martin Feldman, tobacco analyst with Salomon Smith Barney.

But Salmon, a lawyer with the firm of Dewey Ballantine, attorneys for the plans in all three of the suits, denied the timing was politically inspired. “It’s taken several months to put this together. Many plans have been deciding what to do and what not to do. . . . It is something that people have agonized over.”

The lawsuits may actually complicate settlement discussions in Minnesota, due to industry fears that settling there with Blue Cross will appear to validate the new lawsuits and even encourage commercial insurers to test the litigation waters.

If the Blue Cross actions are successful, “what would prevent everybody else from coming out and doing the same?” said Mary Aronson, a Washington-based legal and financial analyst.

Participation by the plans was not unanimous. For example, Blue Shield of California joined the litigation, while Blue Cross of California, a separate organization, elected not to.

“We want to try to change the behavior of tobacco companies and mitigate some of the damage that has been done,” said Tom Gwynn, a Blue Shield of California spokesman, explaining the plan’s involvement.

On the other hand, to Blue Cross of California “it was [a] very complicated issue” and “in the end, we decided not to participate,” said spokesman Larry Bryant.

The new lawsuits are similar to anti-tobacco lawsuits filed by about 40 state attorneys general from 1994 to 1997 and a recent flurry of suits filed in about 30 states by labor-management health care funds that provide medical care for workers in a variety of industries.

Tobacco officials pointed Wednesday to three recent favorable rulings in these cases, including the dismissal of part of the state of Iowa’s anti-tobacco lawsuit and dismissal of suits by worker health-care funds in Florida and Pennsylvania.

In dismissing the Florida case, U.S. District Judge Kenneth Ryskamp observed that the tobacco industry had “become the whipping boy of American political discourse.” But the fact that it “has recently become very unpopular . . . is insufficient ground for this court to overturn well-established common law rules,” he said.

Times staff writers David Olmos and Alissa J. Rubin contributed to this story.

* MINNESOTA TRIAL: Tobacco lawyers are reportedly seeking a settlement of the state’s massive case. D1