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UPDATE 1-S.Korea's state health insurer tobacco firms for damages

(Adds analyst comment, background)

SEOUL, April 14 (Reuters) - South Korea's state health insurer is seeking an initial 53.7 billion won ($51.9 million) from three tobacco companies, including the local units of Philip Morris International and British American Tobacco , to offset treatment costs for diseases linked to smoking.

The National Health Insurance Service (NHIS) said on Monday it was suing the two global cigarette makers, as well as local market leader KT&G Corp, in a South Korean court.

The lawsuit is the first by a state organisation against tobacco firms among 37 countries and territories in the Western Pacific, according to the World Health Organization.

Only four tobacco lawsuits have ever been heard in South Korea, all by individuals or families, so there is no precedent of a successful action against a tobacco company.

Even if the insurer prevails, Morningstar analyst Philip Gorham said the damages being sought are so small the companies should be able to easily cover it through their cash flow.

"The broader issue is, do other governments try to do the same thing, and I don't see why not. It's a legitimate thing to go after to solve a legitimate problem," Gorham said.

"We believe the NHIS, as it takes responsibility for the health of the public and oversees the insurance budget, has a natural duty to bring this tobacco lawsuit," NHIS lawyer An Sun-young told reporters.

The damages were calculated based on data on payments by state insurers for patients with three cancer types associated with smoking, NHIS added. The insurer has previously said it spends more than $1.6 billion each year on treating smoking-linked diseases.

BAT said it would be inappropriate to comment given that the case is ongoing. KT&G said it would base its response to the lawsuit on previous legal processes. Philip Morris did not respond to requests for comment.

Philip Morris, maker of Marlboro cigarettes, earlier this month said it would shut a cigarette factory in Australia and shift production to South Korea.

Philip Morris and BAT combined account for about a third of South Korea's $9.3 billion tobacco market, which is the 10th largest in the world, according to Morningstar. KT&G accounts for the remaining just over 60 percent while Japan Tobacco International (JTI), an affiliate of Japan Tobacco Inc, has the smallest market share at 6.4 percent. JTI was not named in the lawsuit.

The NHIS lawsuit comes after South Korea's Supreme Court ruled last week in favour of KT&G on a separate case brought by individuals, which found no causal link between lung cancer and smoking.

($1 = 1035.0500 Korean Won)

(Reporting by Joyce Lee; Editing by Miral Fahmy and Jason Neely)

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