NCPA - National Center for Policy Analysis

States Cringe At Specter Of Tobacco Industry Bankruptcy

April 12, 2000

States which in 1998 extracted a settlement of $246 billion from cigarette makers, to be paid out over 25 years, are now watching in alarm as suits by individual smokers are reaping huge judgments in courts across the country. What, they wonder, would happen to the money they thought they would get if cigarette makers are forced into bankruptcy by the suits?

  • Some analysts are forecasting that the private suits may cost the companies hundreds of billions of dollars -- leaving bankruptcy as the companies' only alternative.
  • A San Francisco jury awarded $1.72 million plus $20 million in punitive damages to an ex-smoker last month, while in Florida a jury in a class action involving as many as 500,000 smokers found the industry liable -- and another jury awarded $6.9 million to two other plaintiffs.
  • States' attorneys general -- the very band which obtained the original $246 billion settlement -- are among the most nervous of public figures and they are taking steps to secure their claims for continued payments.
  • In fact, some are already hiring bankruptcy lawyers and reviewing the likely impact of an industry bankruptcy.

Analysts point out that the tobacco settlement rewarded states for expenses they did not bear. That's because when people die prematurely, states spend less in terms of expensive medical treatments such as nursing care. Economist W. Kip Viscusi figures smoking actually reduces net medical costs to government by roughly 53 cents a pack.

Source: Doug Bandow (Cato Institute), "States Scramble to Protect Tobacco as Suits Threaten Industry Survival," Investor's Business Daily, April 12, 2000.


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