The decision that damage claims can't be considered as a group means that cigarette makers won't face a collective claim covering as many as 500,000 sick Florida smokers. "This has essentially devastated the most threatening aspect of the claim to the tobacco industry," said Martin Feldman, tobacco analyst with Salomon Smith Barney. "This is enormous news on this case."

In July, a jury found the industry produced a defective product that causes emphysema, lung cancer, heart disease and other illnesses in a ruling that originally exposed the industry to billions in damages. On Tuesday, the second round is set to begin in the first class-action lawsuit by smokers to go to trial. The same jurors who heard the first phase were told by Circuit JudgeRobert Kaye to return to determine whether two sick smokers should be compensated. The defendants are the nation's five biggest cigarette makers -- Philip Morris Cos., R.J. Reynolds Tobacco Holdings Inc., British American Tobacco PLC's Brown & Williamson unit, Loews Corp.'s Lorillard Tobacco Co. subsidiary and the Brooke Group Ltd.'s Liggett Group Inc. - and two industry associations, the Council for Tobacco Research-U.S.A and the Tobacco Institute Inc.

With Friday's decision from the 3rd District Court of Appeal in Miami, "there is no potential for damages to be decided on a group basis and, as a result, this case now doesn't look very different from the vast majority of cases brought against the industry," Mr. Feldman said. The individual claims will produce smaller dollar awards, and the industry will have an opportunity to wipe out the whole case by appealing once one damage award is set, he said.

Results of recent tobacco cases have been mixed. In March, a jury in Portland, Ore., awarded $81 millionto the family of a smoker who died of lung cancer. The month before, a woman with inoperable lung cancer won $51 million in San Francisco. Both awards were reduced by judges.

But the industry won another Oregon case as well as lawsuits on behalf of trade unions in Ohio, three dead smokers in Tennessee and one in Missouri. U.S. juries have awarded damages in smoking liability cases only five times - twice in Florida and once in New Jersey, Oregon and California. The Florida and New Jersey verdicts were overturned on appeal.

The $206 billion national settlement reached with the tobacco industry in November bars states from suing to recoup the costs of treating sick smokers, but it does not prohibit lawsuits by individuals.

Shares of Philip Morris surged on news of the ruling, settling up $2.34, or 6.3%, at $39.22 on the New York Stock Exchange. R.J. Reynolds stock rose 75 cents to $28.38, while Loews added $2.81, or 3.6%, to settle at $80.38. On the American Stock Exchange, British American Tobaccoadvanced 12.5 cents per American Depositary Receipt to $17.25.