Fitch: Tobacco Settlement Eases Industry Litigation Concern

CHICAGO & NEW YORK--()--The settlement of more than 400 lawsuits in U.S. federal courts filed by Florida smokers, the Engle Progeny cases, resolves some uncertainty in extensive litigation pending against the major cigarette companies, Philip Morris USA Inc. (subsidiary of Altria Inc.), R.J. Reynolds Tobacco Company (subsidiary of Reynolds American Inc.) and Lorillard Tobacco Company (subsidiary of Lorillard Inc.).

Together, the companies will pay $100 million to injured smokers or their families, with $42.5 million each to be paid by Altria and Reynolds American and $15 million by Lorillard. These cases date back to 1994 and involve only those cases pending in federal court, which totaled approximately 700 at the end of 2014, and does not address the state actions that collectively number over 3,000 cases. Final approval of the settlement requires an agreement to participate by all plaintiffs.

Significant litigation risk, which includes product liability, consumer fraud and health recovery cases totaling in the thousands, will weigh on the industry for years to come. Fitch sees the highest litigation risk for the industry stemming from the Engle Progeny legal actions in Florida, which currently consist of nearly 3,900 state and federal cases. Each major tobacco firm has an experienced legal team that has stretched the period to resolution of litigation by effectively using the appellate process. Since 2006, damage awards from Engle Progeny litigation have been manageable and easily satisfied with current cash flows.

Additional information is available on www.fitchratings.com.

The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article, which may include hyperlinks to companies and current ratings, can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.

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Contacts

Fitch Ratings
Michael Zbinovec
Senior Director, Corporates
+1 312 368-3164
Fitch Ratings
70 W. Madison Street
Chicago, IL
or
Bill Densmore
Senior Director, Corporates
+1 312 368-3125
or
Kellie Geressy-Nilsen
Senior Director
Fitch Wire
+1 212 908-9123
33 Whitehall Street
New York, NY
or
Alyssa Castelli
Media Relations
+1-212-908-0540
New York
alyssa.castelli@fitchratings.com

Contacts

Fitch Ratings
Michael Zbinovec
Senior Director, Corporates
+1 312 368-3164
Fitch Ratings
70 W. Madison Street
Chicago, IL
or
Bill Densmore
Senior Director, Corporates
+1 312 368-3125
or
Kellie Geressy-Nilsen
Senior Director
Fitch Wire
+1 212 908-9123
33 Whitehall Street
New York, NY
or
Alyssa Castelli
Media Relations
+1-212-908-0540
New York
alyssa.castelli@fitchratings.com