Tuesday, June 12, 2001

Government contests tobacco ruling

By Nancy Zuckerbrod
The Associated Press

        WASHINGTON — The Justice Department urged a federal judge Monday to reconsider a decision that prohibits the government from suing the tobacco industry to recover billions spent treating sick smokers.

        U.S. District Judge Gladys Kessler ruled last year that the government could not seek reimbursement for Medicare costs but could pursue a racketeering case against the companies to recover profits allegedly earned through fraud.

        Judge Kessler said the gov ernment waited too long to recover expenses dating to the 1950s. The government is now seeking costs dating back to the early 1990s. It estimates it spends $20 billion annually on tobacco-related illnesses.

        Justice Department attorney James Ellison argued Monday that the government should be able to recover those costs under a law that allows the government to recoup Medicare expenditures from insurers.

        Mr. Ellison argued that tobacco companies did not purchase adequate product liability insurance over the years but developed self-insurance plans against liability from manufacturing, selling and promoting cigarettes. He cited internal memos stating the companies decided to self-insure rather than purchase insurance.

        Mr. Ellison said that makes the industry liable for Medicare payments, assuming the government can prove the companies injured people through allegedly unlawful conduct.

        Tobacco industry lawyer Herbert M. Wachtell called that a stretch.

        He said decisions not to purchase large amounts of product liability insurance do not mean the companies decided to self-insure.

        “You have an allegation of decisions, but decisions do not a self-insurance plan make,” he told Judge Kessler.

        The judge asked Mr. Wachtell how he would define a self-insurance plan, and he replied it would have to have a formal structure. “Here we have none,” he said.

        Judge Kessler said she would rule on the motion by the end of the summer and that her decision would be final.

        Analyst David Adelman, who follows the industry for Morgan Stanley Dean Witter, predicted the judge would rule against the government.

        “They're not self-insured,” he said. “They're like any other company or any other industry that has not sought massive potential product liability insurance.”


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