(Reuters) - Big U.S. tobacco companies including Reynolds American Inc and Altria Group Inc agreed to pay New York $550 million, or 90 percent, of the amount kept in an escrow account, ending a decade-long dispute.
The dispute stems from disagreements over the enforcement of certain terms of a Master Settlement Agreement (MSA). Under the MSA, signed in 1998, tobacco companies had to make annual payments to U.S. states as compensation for medical costs related to smoking-related illnesses.
Reynolds American, Altria and other companies signed the MSA. But, under the terms, it was also agreed that companies that were not part of the MSA had to contribute to a reserve fund to be used by states to cover smoking-related costs.
However, in 2003, signatories to the MSA argued that some states, including New York, had failed to "diligently enforce" the collection of funds from non-participating companies.
Since then, the participating companies have withheld their own annual payments and put them in an escrow account, which totaled about $700 million for New York.
While 22 states settled the dispute in 2012, New York held back from agreeing to a settlement under which it would have received only about half the amount in the escrow account.
New York Attorney General Eric Schneiderman said on Tuesday that the state agreed to settle for the release of 90 percent of the withheld payments and assurances of continued annual payments under the MSA from now on.
"Big Tobacco must pay for the damage it has done and continues to inflict on communities across New York State," Schneiderman said in a statement. (http://on.ny.gov/1QOXYeR)
About half of the $550 million will go to New York state, a quarter to New York City and the rest to counties outside the city.
R.J. Reynolds Tobacco and Altria's Philip Morris USA issued statements announcing the settlement.
(Reporting by Yashaswini Swamynathan in Bengaluru; Editing by Savio D'Souza)