BAT urged to speak out over US insurance cover

BAT Industries is facing criticism from one of its institutional shareholders for its failure to comment on a claim that the potentially enormous legal claims resulting from its tobacco activities are substantially covered by insurance.

Neil Woodford of Perpetual, the Henley-based investment group with a pounds 120m investment in the group, yesterday called on Martin Broughton, chief executive, to clarify the issue following a report last week by Schroder Securities suggesting "comprehensive general liability insurance coverage probably exists for a variety of tobacco-related claims".

A $300bn (pounds 185bn), 25-year deal to settle claims made by state governments and personal injury litigants has recently been mooted in the US. But it had been thought the tobacco companies would have to bear the full cost as calls on general liability insurance policies had been excluded by the wording of the contracts.

But Mr Woodford said there were clear historic precedents from cases involving pollution that attempts by insurance companies to write comprehensive exclusion clauses into policies were not always upheld by the courts.

"The perception of the investment community is that there is an enormous black hole in relation to tobacco liabilities. The question I want to know is how much insurance coverage there is in place to cover a hit from product liability claims? I believe [BAT's] shares are substantially undervalued. I believe there is a lot more the company could do to realise that undervaluation," he said.

But his demands, at an analysts' presentation of BAT's first-quarter results, fell on deaf ears yesterday. Mr Broughton described the issue as "a highly complex subject, both factually and legally".

Both the types of cases and the issues vary from state to state, involves many different insurers, over many years and with different wording in each.

"In typical US fashion, it is certain to require litigation to clarify that and I do not want to prejudice our position by commenting further on that."

The comments came as BAT reported that pre-tax profits just crept ahead to pounds 591m in the first three months of the year, from pounds 590m before. Mr Broughton said the group was still interested in an acquisition to boost its financial services business in the independent financial intermediaries market, but nothing was imminent.

Investment column, page 26