Are there tangible similarities between the liability scope of opioid abuse and addiction and social media addiction?

For some law experts, very much so. And insurers are already working to reduce their exposure to an expected avalanche of class actions on social media addiction in the near future.

Alarm bells sounded in the offices of tech company executives after a court in California ordered Meta and YouTube to pay $6 million in compensatory and punitive damages to a woman identified by her initials, KGM. She claimed that her childhood use of the Facebook, Instagram and YouTube platforms resulted in addiction, anxiety and depression.

Six million dollars isn’t big money to tech titans, but the precedent was worrying enough to prod Meta’s CEO, Mark Zuckerberg, into providing testimony to the court. The tech world is concerned that courts will accept the argument that social media companies are liable for physical and mental health damages suffered by users because they intentionally design apps to become addictive.

That is exactly what the jury in KGM’s case concluded.

The decision has drawn comparisons with other cases of companies that were the target of class actions with the argument that they sold products to customers that they knew could be addictive and harmful to their health. The opioid epidemic and subsequent legal fallout comes to mind immediately.

Social media addiction’s potential for litigation has also been compared to that of another product, the marketing and sale of which papered the plaintiffs’ bench with hundreds of millions; that being tobacco. It did not help the defendants’ case that a team working at Meta once compared their work at Instagram with that of “drug pushers,” documents released by the California court showed.

At first sight, this seems to mean big trouble only for a handful of social media giants such as the two involved in the California case, plus the likes of Snap (owners of Snapchat) and ByteDance (formerly TikTok US). But it is possible that, while social media giants are the first to be targeted by lawyers due to their deep pockets, other kinds of companies with similar strategies, such as the gaming and streaming industries, or that are part of the social media ecosystem, such as smartphone makers, could end up being dragged into this fight.

That was the strategy pursued by litigators in the opioid class action wave, notes Rosehana Amin, a partner at Clyde & Co.

Opioid addiction class actions started by targeting the pharmaceutical companies that manufactured pain killers, but over time they spread to other actors in the marketing and sales chain, such as distributors and retailers.

Rosehana Amin
Partner, Clyde & Co.

Insurers know this pattern very well and are starting to circle the wagons.

“The insurance market should be aware of not just claims by plaintiffs claiming harm and injury from allegedly addictive use of social media platforms,” Amin said.

“A $375 million verdict in New Mexico establishes that state enforcement action against social media companies over child safety is another form of exposure. Meta is now facing a lawsuit by the Massachusetts Attorney General in relation to social media harms, which it unsuccessfully attempted to get dismissed,” she added.

The defendants in the KGM vs Meta case are set on an appeal, but the floodgates have already been opened, and the wave is unlikely to die on American shores. In Europe, formal proceedings are in motion against Chinese online retailer Shein for, among other reasons, the addictive design of its extremely successful app.

Legal actions of some size are also taking place in the UK and other European jurisdictions.

“The testimony in the KGM versus Meta case will likely be referred to in proceedings, whether in the US or abroad,” Amin points out.

Not surprisingly, perhaps, insurers are moving to protect their capital against the a build up of claims that is hanging over Big Tech like the snow and ice cornice of an avalanche-prone mountain.

According to law office Husch Blackwell, Commercial General Liability (CGL), Directors & Officers (D&O), and cyber liability are the most threatened lines, particularly when they include Bodily Injury and Mental Injury coverage. The lawyers note that damages claimed by plaintiffs in court cases scattered around the country cover injuries and outcomes which include depression, anxiety, sleep disorders, eating disorders, self-harm and suicide.

In March, insurers won the first set of the match against social media companies when a court in Delaware, applying California law, denied Meta insurance coverage for social media addiction lawsuits. The court justified the ruling by arguing that the intentional design of platforms precluded that losses could be covered as accidents by Meta’s CGL policy.

“The Delaware court’s conclusion raises significant issues for software companies, because CGL policies typically cover the types of damages alleged against Meta and other policy types are often structured to avoid coverage otherwise provided by CGL policies”, wrote Charles P. Edwards, a partner at law office Barnes & Thornburg, in a note to clients.

Insurers aren’t waiting  for the courts to take their side on other similar cases. Brokers and lawyers say that, as companies are identified as potential targets for future lawsuits, they should expect to see ever more specific exclusions that aim to address the market’s exposures to those risks.

“Insurers may have to rethink the nature of the coverage provided, which broadened out in recent years,” said Andy Brett, the co-head of North American Professional Risks at the London brokerage Miller. “For instance, many contracts no longer have Bodily Injury exclusions, and underwriters may want to look at that exposure more closely.”

The resistance may prove futile, however, due the sheer size involved in legal actions to come. For instance, Brett notes that exclusions in D&O policies linked to the conduct of executives are difficult to trigger before the jury reaches a verdict.

“Conduct exclusions in most D&O policies are weak. Insurers will have to work hard to prove that that they apply. Those exclusions have a final, non-appealable adjudication language, and policies often carve out defense costs,” he said. “It will be difficult for insurers to use the exclusions until it is too late. Insureds will probably have spent their limits in defense costs by that point.”