Schroders is believed to have told clients that many of the older policies, those taken out in the 1950s and 1960s, could leave insurers exposed to successful claims. More recent policies excluded liability.
BAT Industries was thrown by the Schroders claim: "It could be right; we just don't know", a spokesman said. Schroders refused to comment. It was unclear just how much of any BAT settlement would be covered by the older insurance policies.
The investment house has, apparently, produced a new BAT break up valuation of between 670p to 830p
The possibility some claims could be ring-fenced helped lower Royal Sun Alliance 16p to 430p, GRE 9p to 270.5p and Commercial Union, which feels there could be some modest liability, 20p to 640p. Prudential Corporation, said to be the likely winner of the Scottish Amicable auction, lost 18p to 540p.
BAT, for so long in the doldrums as the health lobby has taken the initiative, was the day's best-performing blue chip, puffing ahead 15p to 509p. Imperial shaded 2.5p to 417p.
The rest of the market had another sad session, weighed down by election and interest rate considerations. Footsie tumbled 40 points to 4,214.8, lowest for eight weeks. The supporting FTSE 250 index was cut by 28.1 to 4,536.9.
There is a widespread conviction US interest rates will be forced higher this week and the next domestic move will be a sharp uplift, soon after the election. Interest-sensitive shares, such as builders and retailers, took the brunt of the selling pressure.
Bass fell 8.5p to 800.5p as it became apparent its controversial takeover bid for Carlsberg Tetley, the nation's third-largest brewer, was likely to be stuck in the Whitehall system until after the election.
There is also the suspicion Bass is, anyway, preparing to walk away. To allow the deal the Monopolies & Mergers Commission was said to be making such draconian demands the brewer had decided it was unrealistic to go ahead.
Bass, it was said, was being told to sacrifice more than 1,000 pubs and some leading brands if it wanted to leapfrog Scottish & Newcastle and again become the nation's biggest brewer.
Scottish and Whitbread, which could suffer if a stand-alone Carlsberg Tetley is forced into a desperate cut-prices campaign to boost sales, weakened with Scottish off 11p at 664.5p and Whitbread 11.5p to 758.5p.
Shell was another under the weather. The oil giant, caught up in a local Nigerian dispute, fell 24.5p to 1,056.5p after closing six production stations, cutting 100,000 barrels a day.
Stagecoach had another wayward day as the market continued to fret about its South West Trains fiasco, falling 29.5p to 649.5p.
Imperial Chemical Industries was hit by another round of profit downgradings. SBC Warburg cut its estimates from pounds 635m to pounds 565m and from pounds 750m to pounds 730m. But it believes the worst is over and the shares could be worth buying; they fell 12.5p to 690p.
Reed International, linked with Reuters in recent speculation, fell 19.5p to 1,084p; it is splashing out $320m for MDL Information Systems, a US group.
An array of newcomers did well. Diagonal, an IT consultancy, reached 310p from a 275p placing; Heal's, the home furnishings retailer issued at 175p, closed at 205.5p; Helphire, providing motoring services, rose from 100p to 126.5p and Prestbury Leisure traded at 2.75p from a 2p placing.
Shield Diagnostic's eagerly awaited presentation was well received with the shares rallying 40p to 690p.
Chemical Design, a software group supplying the pharmaceutical industry, rose 25p to 245p. The company, floated at 110p in August, has won an EU contract to supply a computerised chemical information system.
Charlton Athletic, which made a relegation-style debut on Friday, edged 1.5p ahead to 64.5p. The shares were placed at 80p. Stockbroker Teather & Greenwood is a fan. "Management with extensive plc and financial experience is taking executive control and intend to operate at a profit", it says. Profits this year, boosted by transfer fees, should be around pounds 1.55m.
Netcall, a computer telephony group, firmed 1p to 75.1p; Herald Investment piled in at 60p.
Arcon International eased 1p to 48p, despite making the first shipment from its Irpounds 85m Galmoy lead-zinc mine in County Kilkenny. Production has started at a time zinc prices are at their highest for four years. The development is expected to have a 13-year life at the planned production rate although only 5 per cent of the prospect has been explored.
Speculation in the staid world of Lloyds investment trusts. Matheson Lloyd's closed at a 114p peak, up 1.5p, on suggestions of stake-building. Goshawk Insurance is one interested party and is thought to have accumulated a significant stake and Benfield & Rae has around 3 per cent. Goshawk, related to Lloyds managing agency, Gammell Kershaw, came to market in November at 110p; the shares are now 124.5p.