(Adds analyst comment, background)
SEOUL, April 14 (Reuters) South Korea’s state health insurer is seeking an initial 53.7 billion won ($51.9 million) from three tobacco companies, including the local units of Philip Morris International and British American Tobacco , to offset treatment costs for diseases linked to smoking.
The National Health Insurance Service (NHIS) said on Monday it was suing the two global cigarette makers, as well as local market leader KT&G Corp, in a South Korean court.
The lawsuit is the first by a state organisation against tobacco firms among 37 countries and territories in the Western Pacific, according to the World Health Organization.
Only four tobacco lawsuits have ever been heard in South Korea, all by individuals or families, so there is no precedent of a successful action against a tobacco company.
Even if the insurer prevails, Morningstar analyst Philip Gorham said the damages being sought are so small the companies should be able to easily cover it through their cash flow.
“The broader issue is, do other governments try to do the same thing, and I don’t see why not. It’s a legitimate thing to go after to solve a legitimate problem,” Gorham said.
“We believe the NHIS, as it takes responsibility for the health of the public and oversees the insurance budget, has a natural duty to bring this tobacco lawsuit,” NHIS lawyer An Sun young told reporters.
The damages were calculated based on data on payments by state insurers for patients with three cancer types associated with smoking, NHIS added. The insurer has previously said it spends more than $1.6 billion each year on treating smoking linked diseases.
BAT said it would be inappropriate to comment given that the case is ongoing. KT&G said it would base its response to the lawsuit on previous legal processes. Philip Morris did not respond to requests for comment.
Philip Morris, maker of Marlboro cigarettes, earlier this month said it would shut a cigarette factory in Australia and shift production to South Korea.
Philip Morris and BAT combined account for about a third of South Korea’s $9.3 billion tobacco market, which is the 10th largest in the world, according to Morningstar. KT&G accounts for the remaining just over 60 percent while Japan Tobacco International (JTI), an affiliate of Japan Tobacco Inc, has the smallest market share at 6.4 percent. JTI was not named in the lawsuit.
The NHIS lawsuit comes after South Korea’s Supreme Court ruled last week in favour of KT&G on a separate case brought by individuals, which found no causal link between lung cancer and smoking.
($1 1035.0500 Korean Won) (Reporting by Joyce Lee Editing by Miral Fahmy and Jason Neely)
Richmond, va.: tobacco cos. make payments under state settlement
RICHMOND, Va. The nation’s top cigarette makers said Tuesday they have made about $6 billion in annual payments as part of a longstanding settlement in which some companies are paying states for smoking related health care costs.
Under the 1998 Master Settlement Agreement, participating tobacco companies agreed to make billions in payments to 46 states, Puerto Rico, the U.S. Virgin Islands, American Samoa, Guam, the U.S. commonwealth of the Northern Mariana Islands and the District of Columbia over more than two decades. States first received full payments under the settlement in 1999. It was estimated that the companies would pay up to $246 billion over 25 years. Future annual payments also will continue in perpetuity.
The billions in annual payments come amid criticism from public health officials that states are using only a small amount of the money to fund tobacco prevention programs, making it harder to reduce death and disease caused by tobacco use. The settlement did not mandate that the money was to be used for anti tobacco and stop smoking programs.
While states on average have never spent as much the U.S. Centers for Disease Control and Prevention would like, the total has declined dramatically in recent years as states have grappled with budget deficits. Many also have raised tobacco taxes in order to increase revenue and supplement funds provided by the tobacco industry.
Philip Morris USA, the nation’s largest cigarette maker owned by Altria Group Inc., said Tuesday that it made its payment of about $3.3 billion as part of the settlement.
The Richmond based maker of Marlboro, Virginia Slims and Parliament cigarettes said the payment includes an undisclosed amount that it says it doesn’t owe that was deposited into a separate account. The company will try to get it back through negotiations or arbitration, as allowed under the settlement.
No. 2 R.J. Reynolds Tobacco Co., owned by Reynolds American Inc., based in Winston Salem, N.C., paid $1.77 billion this year. The maker of Camel, Pall Mall, Kool and other brands deposited a portion it disputes— $421 million — into a separate account.
No. 3 Lorillard Inc., Greensboro, N.C. based maker of Newport, True and Maverick brand cigarettes, paid $1.1 billion this year, including $93 million it disputes.
Philip Morris USA said it has paid more than $66 billion under the settlement and previous agreements since 1997. RJR has paid more than $33 billion under the agreements, and Lorillard has paid more than $16 billion.
Michael Felberbaum can be reached at