Last week, Big Tobacco players Altria
These tobacco companies and others were sued by the city of St. Louis and 37 area hospitals for nearly $455 million in a bid to recover costs from 1993 to 2010 of treating smoking-related illnesses for patients who were unable to pay. The hospitals claimed that the industry had purposely produced an "unreasonably dangerous" product, a move that had increased spending for unreimbursed tobacco-related health care.
The verdict was a win for investors in tobacco companies, which have ultimately prevailed in the three health-care recovery cases that have come to trial. In the two prior cases, one resulted in the jury siding with the defense in a 1999 Ohio case, and the other awarded limited damages in New York in 2001 -- a decision that was reversed on appeal in 2004. According to Altria, 17 state and federal appellate courts have rejected claims to recover health-care costs from smokers.
Altria has also been busy in the Sunshine State, too. Litigation of thousands of Florida cases is ongoing following the decertification of a class action lawsuit in 2006. In March, Altria revealed that in 11 of 17 follow-on trials, it had either won or had a mistrial and was still busy appealing the remainder.
But despite the ongoing litigation, Big Tobacco companies have still proven to be prodigious generators of cash. Altria and Lorillard scored operating margins around 40% over the last four quarters, while Reynolds was no slouch either, coming in at 31%.
Jim Royal, Ph.D., does not own shares in any company mentioned here. Motley Fool Options has recommended writing puts on Lorillard. The Fool owns shares of Altria. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.