Smoked Out

Review and Outlook
Copyright 1999 Wall Street Journal
December 3, 1999

Nobody can question that tobacco has become democratically unpopular, so much so that 45 million smokers might as well not exist as far as politicians are concerned. But we're still a country of laws, thank heaven.

This week the Supreme Court heard arguments on the Food and Drug Administration claim that, because the cigarette companies knew about nicotine, Congress must have intended the FDA to regulate cigarettes as a "drug" all along. In other words, the tobacco industry has escaped regulation until now only by fooling everyone about the nature of its product. This is another argument about the meaning of "is," an attempt to defy common sense and everyday knowledge with semantic tricks. Fortunately, the Justices seemed to be having none of it.

Then again, the whole tobacco crusade has exposed the government as the worst disrespecter of the law, putting forth claims and arguments that no private citizen could hope to get away with. That helps explain why Blue Cross/Blue Shield and union health funds have thus far failed to cash in on the smoking-related illnesses bonanza even though they are presenting the same arguments used by state governments in the now-infamous Medicaid lawsuits.

By now it's widely understood that the state financial claims were dubious. Smokers die on average six years earlier than non-smokers, saving the government money on its retirement and Social Security programs. With these savings and the taxes on cigarettes, the smoking habit represents a net government gain of about 85 cents a pack.

The real issue here, however, is the 200-year-old doctrine of "subrogation," which means an insurer has a secondary claim for reimbursement only if the injured party has a claim. Jury after jury has found that smokers knew that smoking was bad for them and chose to smoke anyway. For that matter, insurance companies also knew smoking was bad and chose to insure smokers anyway. There is no claim.

That's the law, and so far Blue Cross et al. are batting 0-for-4 at the appellate level.

In the latest scathing opinion, the Seventh Circuit Court of Appeals wrote last month: "The food industry puts refined sugar in many products, making them more tasty; as a result some people eat too much (or eat the wrong things) and suffer health problems and early death. No one supposes, however, that sweet foods are defective products on this account; chocoholics can't recover in tort from Godiva Chocolatier. If, as the Funds and the Blues say, the difference is that Philip Morris has committed civil wrongs while Godiva has not, then the way to establish this is through tort suits, rather than through litigation in which the plaintiffs seek to strip their adversaries of all defenses."

The Second, Fourth and Ninth circuits have come to similar decisions. In other words, these courts are rejecting the same arguments used last year by the state Medicaid agencies and their trial-lawyer friends to cut themselves into a $250 billion share of the tobacco industry's future profits.

So why didn't the tobacco companies fight those earlier cases to the end? Because they were worried about a Clintonized jury in states where they would have had to post a $200 billion bond just to appeal. Rather than put themselves out of business, they cut the best deal they could.

Under the "anything goes" ethic of Washington these days, some would undoubtedly clap their hands in glee. If you can pass a law, as Florida did, that simply says the tobacco companies may offer no defense at all to a Medicaid lawsuit, well, yippee--what a triumph for society.

The only problem is that these tactics can be turned against any industry unlucky enough get caught in the swirling gusts of the zeitgeist.

Motorcycles are dangerous even when used properly, and adrenaline probably fits under some definition of addiction. Fatty foods cause heart disease, yet the human body craves fat. Even if a court decides that fast-food consumers are ultimately to blame for their rotundity, Medicaid and Medicare are "victims" and may collect under the new doctrine.

The Washington Post editorialized yesterday that class-action product liability lawsuits against companies like Microsoft and the HMOs "have next to nothing to do with the interests of consumers but are essentially commercial ventures within the judiciary." Welcome to the club, but now there's a greater threat.

The casual dismissal of subrogation in the tobacco cases represents an unprecedented lowering of the bar for vast new damages claims. The same scheming legalism lies behind Bill Clinton's federal suit against Big Tobacco. Claims that would have no hope when brought by individuals are capable of spawning government demands for reimbursement.

This is the welfare state run amok. The implication is that people are chattels belonging to the government. And because the potential damages are so high, industries would have no choice except to settle. In all but name, the tobacco companies have become nationalized properties. Who's next?

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