Anne Landman's Collection
Merit "Life-Savers" Insurance Plan
Abstract
In December of 1980, James Bowling, the Senior Vice President of Philip Morris (PM), attended a holiday a dinner party where he complained to the other guests about insurance companies offering discounts to non-smokers(http://legacy.library.ucsf.edu/tid/tem87e00). Also attending the party was Frank Crohn, the Deputy Chairman of the National Benefit Life Insurance Company, who told Bowling that such discounts were not based on any actuarial reality and proposed Philip Morris start offering discount life insurance to smokers via packs and cartons low-tar cigarettes. Philip Morris apparently thought this was a great idea and proceeded with the plan. This letter is a legal analysis (by the attorney for the National Benefit Life Insurance company) of PM's plan to offer "Merit Life-Saver" insurance to smokers through inserts placed inside packs and cartons of Merit low-tar cigarettes.
A mock-up of the promotional materials can be seen here http://legacy.library.ucsf.edu/tid/ybb81e00. A letter from PM to smokers says,
"Dear Merit Smoker :
You probably have heard about life insurance discounts for non-smokers, but here is a first. Now you,a smoker of low-tar Merit cigarettes, have the chance to apply for high amounts of low-cost life insurance coverage ...and do it by mail in the privacy of your home or office."
The legal analysis considers the fact that the U.S. Surgeon General had declared cigarettes harmful to health, describes how the insurance company could skirt liability, and states (page --2233), "On the basis of the materials submitted, there should be no unfair or deceptive advertising practice, particularly if it is not inferred that smoking Merits is good for your health, better for you than other cigarettes, or earns any insurance advantage."
Fields
- Notes
Thanks to Richard Barnes of the University of California San Francisco Center for Tobacco Control Research and Education for bringing this document to Doc-Alert's attention.
- Quotes
We have reviewed the Merit Cigarette marketing proposal, as described below, and find it to be legally feasible with the modifications and safeguards indicated.
As we understand it:
(a) the proposed insurance product is a term life insurance policy generally available to the public through your conventional sales outlets and not limited to the Merit marketing program. Premium payment may be made directly to the company or via check-o-matic, or Master Charge or Visa bank credit cards. No cigarette dealer of any kind will receive any commissions from the sale of insurance, nor be in any way compensated by National Benefit Life Insurance Company (NBLIC) in relation to volume of insurance sold or applications received. Merit will be compensated through commissions to an insurance agency subsidiary. (b) Promotion folders offering life insurance will be inserted in the top of the carton by the tobacco company. The folder will contain a self mailer application, as well as promotional material. In the alternate, we understand you intend to experiment with a small paper folder which can meet postal requirements, but is still sufficiently small and compact to be affixed on a pack of cigarettes over the cellophane, with its outside facing panel simulating the covered side of the pack both in information and design. In both carton and pack insert, the customer does not learn of the insurance message until after he completes the purchase and opens it. There will be no extraneous promotional material at the point of sale or elsewhere.
(c) It is intended that the plan be called "Merit Life-Savers." Part of the sales literature in the folder will be a letter from the cigarette company...
...The problem with which you expressed particular concern was that of conceivable products liability to NBLIC for adverse physical consequences from smoking cigarettes purchased in a pack containing the insurance application. We believe other pertinent legal points which require attention are the effect of the Surgeon General's health hazard warning, and the fairness of the insurance advertising with respect to any Merit cigarette connection.
- Company
- Lorillard collection, but pertains to a Philip Morris brand (Merit)
- Author
- Harnet, Bertram ESQ. (National Benefit Lawyer)
- Recipient
- Crohn, F.T.
Document Images
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Mr. Frank T. Crohn
National Benefit Life Insurance Company
2 Park Avenue
New York, New York 10016
Dear Frank:
This letter will respond to your letter of
my interim letter to you of December 23, 1980.
December 8, 1980 and our.subsequent discussions, including
We have reviewed the Merit Cigarette-marketing
proposal, as described below, and find it to be legally
feasible with the modifications and safeguards indicated.
As we understand it:
I
`
(a) The proposed insurance product is a term
life insurance policy generally available to the public
through your conventional sales outlets and not limited.
to the Merit marketing program. Premium payment may be
made directly to the company or via check-o-matic, or
Master Charge or Visa bank credit cards. No cigarette
dealer of any kind will receive any commissions from
the sale of insurance, nor be in any way compensated by
National Benefit Life Insurance Company (NBLIC) in
relation to volume of insurance sold or applications
received. Merit will be compensated through commis-
sions to an insurance agency subsidiary.
(b) Promotion folders offering -life insurance
will be inserted in the top of the carton by the
tobacco company. The folder will contain a self mailer
application, as well as promotional material. In the
alternate, we understand you intend to experiment with
a small paper folder which can meet postal requirements,
~5,~'i4O5E5 a SiNGER
.=1!Sr. Frank T. Crohn
National Benefit Life Insurance Company
January 30, 1981
but is still sufficiently small and compact to be
affixed on a pack of cigarettes over the cellophane
with its outside facing panel simulating
side of the pack both in information
In both carton and pack insert,
learn of the insurance messa
his purchase and opens it
promotional material
covered
in design.
'e customer does not
until after he completes
There will be no extraneous
the point of sale or elsewhere.
...x.. ;; .
intended that the plan be called
Part of the sales literature in
a letter from the cigarette company.
Piease note the photocopy attached to this letter as
"Schedule A" of our December 23, 1980 letter to you
enclosing a copy of the proposed letter marked up to
reflect our recommendations. You will also notice in
the body of our letter a rPfpro ~~ *hp Gl,rnn,oty-rien-
eral letter which we believe should be in the brochure
re erre to in the Philip Morris letter. No copy of
any brochure has been furnished to us.
(d) NBLIC pays for the insurance sales
literature and for the cost of insertion. It pays
nothing towards the cost of the cigarettes or their
packaging, nor does it in any way participate in
the manufacture, distribution, or sales of the
cigarettes.
The problem with which you expressed particular '
concern was that of conceivable products liability to NBLIC
for adverse physical conseauence rom smo ing_sigare es_
p'urchased in a pack containing the insurance application.
We believe other pertinent legal points which require
attention are the effect of the Surgeon General's health
hazard warning, and the fairness of the insurance adver-
tising with respect to any Merit cigarette connection.
For the sake of caution, we have considered both
insurance law and the antitrust law regarding "tie-in"
sales. Though such are theoretically applicable, we believe
that as a practical matter, your present marketing plan
would not raise these problems, assuming the same insurance
policy would be available through means other than by the
purchase of Merits.
MOSES A SINGER *.
-Mr. Frank T. Crohn
National Benefit Life
January 30, 1981
1
(
basis of an action in tort for personal physical injury.
We have found no reported cases finding an insur-
Products Products Liability Exposure
. The Insurance Product
,
ance policy to be a "product" for liability purposes, nor
given its nature could its defectiveness be foreseeably the
B
therefore
warranty (express or implied), and strict liability. One
may be held liable under these theories if one is deemed
to be a "manufacturer"; "merchant" or "seller";-or "joint
,The Cigarette Product
Any concern of NBLIC for product liability must
involve the cigarettes which are sold.
A cause of action for products liability may be
based on three different theories: negligence, breach of _.
tortfeasor" or "joint adventurer".
(1) Manufacturer
NBLIC is not the cigarette manufacturer, nor would
it be liable as the manufacturer of the cigarettes.
(2) Merchant or Seller
"Merchant" is a strictly defined term in the
Uniform Commercial Code as "a person who deals in goods of
the kind or otherwise by his occupation holds himself out as
having knowledge or skill peculiar to the practices or goods
involved...or to whom such knowledge or skill may be
attributed...", U.C.C. Section 2-104(1).
"Seller" is a term of common law and a term of the
Restatement (Second) of Torts. Its meaning closely parallels
that of "merchant". We believe that NBLIC would be deemed
neither a "merchant" nor a "seller" since, in applying the
above U.C.C. definition, it is clear that NBLIC does not
4-/O8E8 a. SINGER
Mr. Frank T. Crohn
National Benefit Life Insurance Company
January 30, 1981
"deal" in cigarettes or products of the kind and would not
"hold itself out as having knowledge or skill peculiar" to
one who deals__in cigarettes.
The joint venture characterization is the perti-
'(3) Joint Tortfeasor or Joint Adventurer
nent one to discuss.
and skills so that for the purpose of the particular adventure
their respective contributions have become as one and the
commingled property and interests are thereby made'subect to
the mutual control of all", Levine v. Personnel Institute,
Inc., 138 N.Y.S.2d 243 (Sup. Ct. N.Y. Co. 1954), aff'd 2 A.D.
2d 964 (lst Dept. 1956). The ultimate inquiry is whether such
mutual control has been given on the trust and inducement that
each joint adventurer will act for the benefit of all, Hasday
v. Barocas, 10 Misc.2d 22, 28 (NY Co. 1952); Steinbeck v.
Gerosa, 4 N.Y.2d 302, 317 (1958).
sons" combine to devote themselves to.a specific enterprise
without forming an actual partnership or separate corpora- -
tion. "It is an association of such persons to carry out a
single business enterprise for profit, for which purpose they
combine their property, money, effects, skill and knowledge,"
Shove v. Siegbert, 239 A.D. 334, 336 (1st Dept. 1933).
Yet a "joint adventure" or "enterprise" does not
exist unless there is a joinder or pooling of property, risks
A joint adventure exists when two or more "per-
The bulk of the cases in this area of law concern
not the sharing of liability to third parties but the shar-
ing of profits or losses amongst the "joint adventurers".
Nonetheless, there is no question that one who enters a joint
venture may be deemed a joint tortfeasor and the cases are
therefore essential.
In Columbian Laundry v. Hencken, 203 A.D. 140 (1st
Dept. 1922), the plaintiff and defendant, two businessmen
otherwise unconnected to each other, agreed to purchase
trucks from a company which was going out of business by W
C.J
A7.-
O..
Plr/oSES & SINGER
Mr. Frank T. Crohn
National Benefit Life Insurance Company
January 30, 1981
I
pooling their money and dividing the lot between them.
(
price, and that he, plaintiff, ~had been bilked out of a
sum that defend ant had collected from plaintiff but had
not paid to the seller of the trucks.
After consummating the deal, the plaintiff discovered that
the defendant had falsely misrepresented the total purchase
be no sharing of profits... The property purchased was to be
"The adventure described in the complaint lacked
an essential feature of a partnership, in that there was to
partnership, the court stated:
and defendant did not-constitute a partnership or a quasi-.
In holding that the agreement between plaintiff
(1st Deat. 1934). 0
owned in severalty, not jointly. There was to be no sharing
of prof its or losses. If the trucks received by defendant
were thereafter-sold by him for a greater price'than the
sum he contributed therefor, the plaintiff had no interest
in such profits and would have no cause of action against
the defendant If plaintiff sold his share of the property
purchased at a loss, he could not call on the defendant to
contribute to such loss. Thus the underlying elements of a
partnership or joint adventure are lacking", 203 A.D. 140.
A mere contractual relationship, as between author,
and publisher, is not a joint venture in interstate commerce
so as to exempt the author from city privilege taxes. In
Steinbeck v. Gerosa, su ra, the Court of Appeals held that
an author-publisher contract under which the author was to
receive royalties, license payments and the like (thus share
in the "profits" but was not required to share in the
losses, created a debtorcreditor relationship only. Nor is
a "brokerage" relationship a joint venture, Reynolds v.
Searle, 186 A.D. 202 (4th Dept. 1919), even where the
parties agree that one will receive 45% of the other's net
profits whether resulting from the former's products or not
and where they each have the right to inspect the "books" of
the other, Gordon Co. v. Garcia Sugars Corp., 241 A.D. 155
MOSES a. SINGER
Mr. Frank T. Crohn
National Benefit Life Insurance Company
January 30, 1981 1
instance, NBLIC would not share in profits arising from the
that the above common law cases contemplate. Nor do we
understand that you will mesh your profits, so that, for
We do not understand that NBLIC and the cigarette
manufacturer will "commingle" their properties in the sense.
sale of Merits.
adventurers. The agency contract will, of course, expressly
negate such a relationship.
It is our understanding and has been our recommen-
dation that the Merit cigarette company will create its own
insurance agency and acquire a license for such agency as
required by law. Assuch, it will stand in relation to
NBLIC as do other existing licensed agencies. From this
relationship, there should be no inference that NBLIC and
the cigarette company have "commingled" their properties as
that term is interpreted by the cases dealing with joint
-However, it should be noted that the law regarding
"joint adventurers" has been greatly expanded in the last
decade. In 1972, Dole v. Dow Chemical, 30 N.Y.2d 143 (1972)
was_decided and that case virtually abolished some of the
"finer distinctions" with respect to tort law. Although the
facts of the Dole case are not particularly relevant here,
that which followed it -- the New York State legislature's
enactment of Section 1401 of the CPLR -- is broadly written
and should not be disregarded. Section 1401 provides: "
"S 1401. Claim for contribution
Except as provided in section 15-108
of the general obligations law, two or more
persons who are subject to liabiity for dam-
ages for the same personal injury, injury to
property or wrongful death, may claim contri-
bution among them whether or not an action
has been brought or a judgment has been
rendered against the person from whom contri-
bution is sought.."
~'WOSES E SINGER
:t!4ir. Prank T. Crohn
National Benefit Life Insurance Company
January 30, 1981
Section 1401 led the way to New York's adoption
_of the doctrine of "comparative negligence" which allows not
feasors and alternative tortfeasors", 1974 Rep. Jud. Conf.
bution to include not only joint tortfeasors, but also
"concurrent tortfeasors, successive and independent tort-
trine together were intended to expand the right of contri-
only partially wrongdoing plaintiffs to recover for that
portion of the wrong for which they are not deemed respon-
sible, but also allows juries to apportion the "wrong(s)"
amongst any number of defendants. The statute and the doc-
to Legislature, McKinney's Sess. Laws 1805-1806
such defendants' acts result in one injury--that is, where the
injury_sustained is "indivisible", Wiseman v. 374 Realty
Corp., 54 A.D.2d 119 (lst Dept. 1976). Conversely, an action
for apportionment of damages will not lie where the alleged
injury was caused by successive tortfeasors and that injury is
"divisible", Bergan v. Home for Incurables, 75 A.D.2d 762 (lst
Dept. 1980).
concurrently liable for fraudulent misrepresentation, Taft v.
Shaffer Trucking Co., 52 A.D.2d 255 (4th Dept. 1976). It has
been further held that liability need not even be predicated
on tort. Liability may be based on contract or.breach of
warranty, fi assau Roofing & Sheet Metal Co. v. Celotex Corp.,
74 A.D.2d 679 (3rd Dept. 1980). What is required is that
t fendant may be liable for professional negligence and another
liable on the same theory or theories of law. Thus, one de- .
There is no requirement that such tortfeasors are
NBLIC's role is restricted to package inserts,
either in the carton or the pack. In making his cigarette
purchase, the purchaser in no way goes to or relies on
NBLIC. Indeed, he first knows of the insert when he opens
his purchase. NBLIC does not recommend or urge smoking.
In fact, its disclaimer in its brochure will specifically
state tha_t Mexits are not claimed by it to be better risks
than any other cigarettes. Merit is ria6lefor prcts
liability, conceivably National Benefit could be obliged
to
participate in damages under the Dole v. Dow and CPLR
Section 1401 principles, if it incurs separate liability for
misrepresented advertising or other legal default.
Il
x ~N03 Es E StNCER
Mr. Prank T. Crohn
National Benefit Life Insurance Company
January 30, 1981
i
Product Liability for the
Cigarette Product Altogether
(
merchant, seller, joint tortfeasor or joint adventurer, it
would have no products liability as such. If, however, our
conclusion that it is not deemed to be any of these proves
incorrect, the inquiry moves to whether the cigarette
manufacturer sales themselves give rise to products liabi-
If NBLIC were in no way deemed a manufacturer,
lity exposure.
lity. The plaintiff in such an action typically proceeds
under all three theories, and as a prima facie foundation
breach of warranty (express or implied); and strict liabi-
may be based on three different legal theories: negligence; .-:-?
A products liability action, strictly speaking,
There are, however, differences among the bases of
liability in negligence, breach of warranty and strict lia-
bility. And there are cases in which a party is held liable
under one theory and not liable under another. What follows,
therefore, is a separate discussion of each basis. .
for each of the three, he must prove: (1) the product was
defective; (2) it was defective when it left the hands of
the manufacturer or seller and there was no subsequent
modification which substantially altered the product; and
(3) the defect was the proximate cause of plaintiff's
injury: Robinson v. Reed-Prentice, 49 N.Y.2d 471 (1980).
(1) Legal Theories for Product Liability
(a) Negligence
In negligence, the rule is that the seller
may be liable for negligent manufacture or sale of any
product which may reasonably be expected to be capable
of inflicting substantial harm if it is defective. The
seller is held to the standard of reasonable care, including
:'1NOSE3 E SINGER
aNCCr ao
National Benefit Life Insurance Company
January 30, 1981 )
Mr. Frank T. Crohn
Curtis Industries, Inc. v. Pruitt, 385 F. 2d 841 (C.A.5,
1968); McDaniel v. Williams, 23 A.D.2d 729 (1st. Dept.
1965). The current standard in New York cases is whether
the specific hazard is one of which the consumer is aware,
"through common knowledge or learning", Lancaster Silo &
Block Co. v. Northern Propane Gas Co., 75 A.D.2d 55 (4th
reasonable care in methods of advertising and sale, to avoid
misrepresentation of the product, and to disclose defects
and dangers of which.he knows. The duty to disclose in-
cludes the "duty to warn" and is commonly limited by the
holding that the seller may not be held liable for harm
caused by dangers that are known to the user, or are obvious
to him or are so commonly known that it can reasonably be
assumed that the user will be familiar with them. See Helene
Dept. 1980).
By contrast, under breach of warranty, the
seller of-a product is liable upon showing the existence
of the warranty, its breach, and that such breach was
the proximate cause of the harm sustained, U.C.C. Sec-
tion 2-314, Comment 13. A warranty may exist because it
is express (U.C.C. Section 2-313), or because it is implied
in law, as are the warranties of "merchantability" (U.C.C.
Section 2-314) and "fitness for the particular purpose"
(U.C.C. Section 2-315).
(b) Warranty
(c) Strict Liability
Strict liability is a growing doctrine, whose
parameters are accepted or rejected in varying degrees in
the American jurisdictions. Where applicable, it actually
supersedes negligence as a basis of liabilty in jurisdic-
tions where it has been adopted. It does not arise out of
contract principles, as warranty does, and it does not arise
out of the seller's failure to perform a duty owing to the
consumer, in the sense that negligence does. It is strict
or "absolute" liability imposed by law on the "seller"
including the "manufacturer", of any product, Restatement
(Second) Torts, Section 402A.
