TOBACCO FIRM LIABLE IN CANCER CASE

Courts: California jury awards smoker $1.5 million in compensatory damages.

The tobacco industry suffered a legal defeat late Tuesday when a San
Francisco jury found Philip Morris liable for the lung cancer of a longtime
smoker and awarded her $1.5 million in compensatory damages, an amount that
may rise when deliberations resume today on her request for punitive
damages.

Tobacco companies have settled a number of major cases, but the verdict for
Patricia Henley, 52, of Los Angeles is the first victory for a plaintiff in
a California smoking and health case. The industry's only three previous
losses in suits by individual smokers were eventually set aside.

The outcome in the California case is likely to trigger an outpouring of new
anti-tobacco claims in the state, where product liability suits against
cigarette makers were until recently banned by state law.

After a monthlong trial, the 12-member jury in San Francisco Superior Court
deliberated nearly 24 hours over four days before returning the verdict late
Tuesday. Voting 12 to 0 on some claims and 11 to 1 or 10 to 2 on others,
jurors found Philip Morris guilty of fraud and negligence and of failing to
provide health warnings at the time Henley took up smoking.

Henley could not be reached, and lawyers for both sides declined to comment,
citing the trial's pending punitive-damages phase.

The verdict offers another reminder of the immense legal challenges still
facing the tobacco industry--which has been widely but wrongly assumed to
have disposed of its liability problems in November when it reached a
historic legal settlement with state attorneys general. The Clinton
administration recently announced its intent to sue the industry to recover
smoking-related health-care costs borne by the federal government.

Moreover, the industry still faces dozens of private class-action suits and
hundreds of claims by individual smokers across the country. The number of
legal claims is sure to increase on the strength of the Henley verdict.

Henley is a high school dropout who ran a small business and once aspired to
a career as a country and western singer. According to evidence in the case,
she took up smoking in the early 1960s, when she was about 15, and quit
during the fall of 1997, when she began experiencing coughing and other
symptoms. In February 1998, she was diagnosed with an inoperable cancer in
her chest, although it has responded well to chemotherapy and radiation
treatments.

She accused Philip Morris of concealing the risks and addictiveness of
smoking and of failing, even now, to warn that people who start smoking may
be unable to quit.

Philip Morris countered that it was not liable because Henley understood and
assumed the risks of smoking. The company also argued that Henley's cancer
did not start in the lung, as her suit maintains, and thus did not result
from smoking.

In a deposition taken before trial, Henley testified that she did not want
any money from Philip Morris--saying that if she won, any money left after
payment of medical and legal bills would be donated to a group that fights
smoking among teenagers. In Henley's trial testimony, Judge John Munter, to
avoid prejudicing jurors, did not permit her to discuss this plan.

Henley is the first Californian in 13 years to have her day in court against
a tobacco company. The last tobacco trial ended in a verdict for the
defendant company in December 1985, when a Santa Barbara jury found R.J.
Reynolds Tobacco Corp. was not liable for the death of longtime smoker John
Galbraith.

Product liability suits against tobacco companies were later prohibited
under a 1987 tort reform law that banned them on the grounds that the risks
of smoking were universally known. The immunity clause gained notoriety as
the "napkin deal," because lawmakers and lobbyists had sketched it on a
napkin at a popular Sacramento restaurant. Lawmakers repealed the ban on
anti-tobacco suits in 1997.

Besides the Henley case, an additional 20 or so new California claims are
pending.

Philip Morris is the world's largest tobacco company. The three previous
jury verdicts against tobacco companies--in New Jersey in 1988 and in
Florida in 1996 and 1998--were against other cigarette makers. All of those
verdicts were overturned on appeal, including a ruling last week that struck
down one of the Florida verdicts.

The verdict in the Henley case is likely to enhance the giant-killer status
of Henley lead attorney Madelyn Chaber, a San Francisco lawyer who
previously won a $2-million award against Lorillard Tobacco in a case
involving asbestos exposure.

In that case, tried in San Francisco in 1995, jurors awarded compensatory
and punitive damages to Milton Horowitz, a Beverly Hills psychologist who
suffered from mesothelioma, an asbestos-related cancer. Jurors found that
Horowitz contracted the disease from smoking Kent cigarettes in the early
1950s, when the Lorillard brand's highly touted "Micronite" filter was made
with crocidolite, a particularly lethal form of asbestos.

It was the biggest judgment imposed on a cigarette maker then or
since--although it was not, strictly speaking, a smoking and health case,
because the issue was exposure to asbestos rather than to unadulterated
cigarette smoke.

In that case as in this one, Chaber's opponent was William S. Ohlemeyer of
the premier tobacco defense firm of Shook, Hardy & Bacon.