Appeals Court Rules Blue Cross Insurer Cannot Sue Philip Morris USA under New York's Deceptive Practices Law

Decision Should Invalidate 2001 Verdict

The New York Court of Appeals has ruled that the state's largest medical insurer cannot use a state consumer protection law to pursue direct claims for the recovery of medical expenses from cigarette makers.

The case involved a challenge by Philip Morris USA to a $6.7 million award in favor of New York's Empire Health Choice, previously known as Blue Cross-Blue Shield. That verdict was returned by a federal jury in Brooklyn in June 2001 in a case presided over by U.S. District Judge Jack B. Weinstein. The jury also rejected claims based on racketeering and civil fraud.

"Today's ruling should result in the verdict being set aside and the conclusion of the case," said William S. Ohlemeyer, Philip Morris USA vice president and associate general counsel. "Today, the highest court in New York agreed with our view that the jury verdict was not supported by New York law."

The state's highest court ruled that the legal doctrine of remoteness applied to the deceptive practices section of New York's General Business Law, and that doctrine barred suits such as the one brought by Empire Health Choice.

In 2001, a Brooklyn jury awarded Empire Health Choice a total of almost $17.8 million in its case against Philip Morris USA and other major cigarette makers.

In 2003, the Second Circuit Court of Appeals, which was then considering Philip Morris USA's appeal of that verdict, asked the New York Court of Appeals (New York's highest state court) to consider issues of legal remoteness and the use of aggregate evidence to prove causation and damages under New York Law.  In today's ruling, the New York Court of Appeals ruled that Empire's injuries were legally too remote. In rejecting Empire's arguments, the court concluded "what is required is that the party actually injured be the one to bring suit.  Empire was not directly injured in this sense."

The insurance company had originally sought more than $1 billion in damages, alleging the companies had violated federal racketeering laws. The jury rejected those claims.

The case was among three such lawsuits filed in 1998 by Blue Cross and Blue Shield plans across the country. The other two cases, filed in Seattle and Chicago, were dismissed after two other federal appeals courts ruled the plans had no legally valid claims.

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