Liggett Group has launched a lawsuit against 32 insurance companies, including AIG, The Hartford, Zurich, and Britain's Commercial Union and Royal Insurance, seeking to recover legal defense and indemnity costs for tobacco-related litigation dating back to 1970. Liggett has also notified each state's guaranty fund, which deals with claims against defunct insurance companies, that it is making claims against policies with the now-insolvent American Mutual. Liggett's is the first such action by a tobacco company against its insurers.

Since 1996, when it became the first tobacco company to settle state class action lawsuits over tobacco's negative health effects, Liggett has incurred substantial legal fee and settlement costs. According to an SEC filing, Liggett is the subject of 420 lawsuits, with legal fees of over $4 million in the first three quarters of 1999. Those fees do not include settlement costs. The 1996 settlement alone cost the company 25 percent of its profits over the next 25 years, plus an additional $25 million if it merges with another company.

Liggett claims that its liability policies cover legal costs in the event of a health liability lawsuit. Insurers, however, argue that they have historically limited their exposure to tobacco-related health claims by writing "health hazard exclusions" into tobacco companies' liability policies. These exclusions exempt the insurance company from providing coverage when liability stems from an alleged health hazard.

Jayna Neagle of the Insurance Information Institute says Liggett also seeks payment for settlement costs, including "pain and suffering" damages, because it believes such damages are separate from the "health hazard exclusions" cited by the insurers.

However, Neagle says, the insurance industry responds by citing not only "health hazard exclusions" but also the "claims made" nature of the policies in question. "Claims made" means that any claim on a policy must be made within the life of the policy; in Liggett's case, some settlement and legal costs date back 30 years. In addition, insurance companies require "timely notification" of a claim. "Handling cases independently for 30 years and then making a claim isn't timely notification," Neagle says.

Sue Honeyman, spokesperson for The Hartford, confirmed her company's belief that Liggett's suit is without merit. The Hartford is, so far, the only insurance company named in the suit that wants a declaratory judgment against Liggett. Such a judgment would state that The Hartford has no contractual obligation to pay for any health-related tobacco lawsuit.

Liggett has declined comment on the litigation. A spokesperson for the company would say only that "Liggett has taken steps to preserve claims against its insurers."