In the last few years, the video game industry has been hit with lawsuits accusing certain games of fostering addictive behaviors, especially among younger players. These lawsuits often cite features like loot boxes, microtransactions, and reward systems, which are designed to enhance player engagement, as in-game mechanisms that push players toward compulsive play and psychological harm. Plaintiffs claim that game developers either knew or should have known about these potential risks and failed to mitigate them.
As the recognition of gaming addiction grows—now even being acknowledged by medical institutions and treatment centers—these lawsuits pose serious financial risks to game companies. The industry is facing claims rooted in negligence, product liability, and failure to warn, which all hinge on the argument that these game features were intentionally designed to be addictive.
Though courts have not yet reached a consensus on whether these claims are valid, developers should prepare to defend themselves against this growing legal threat. One key line of defense lies within their insurance policies. This article will explore potential insurance recovery options for game companies, drawing analogies from opioid addiction lawsuits to highlight possible coverage solutions.
Insurance Coverage: An Essential Line of Defense
Several types of insurance policies provide potential coverage for game developers facing addiction-related lawsuits. However, the specific terms and exclusions in these policies will significantly impact whether coverage applies. Indeed, many of these issues have been litigated by industries facing similar addiction-related litigation—like the opioid crisis. These provide a roadmap for game companies to follow to maximize potential recoveries.
Commercial General Liability (CGL) Insurance: CGL policies typically cover claims involving bodily injury or property damage resulting from a company’s products. In the case of video game addiction lawsuits, the key issue is whether the psychological harm or behavioral issues associated with compulsive gaming qualifies as “bodily injury” under the policy. While some policies exclude mental injuries from their definitions, others arguably cover addiction-related claims.
- Case Example: In Rite Aid Corp. v. ACE American Insurance Co., the trial court ruled that ACE American Insurance had a duty to defend Rite Aid in opioid-related lawsuits. The court rejected the argument that addiction claims did not involve “bodily injury.” It found that addiction and its associated harms, such as overdose or withdrawal, constituted bodily injury, triggering coverage. However, the Delaware Supreme Court reversed course. In ACE Am. Ins. Co. v. Rite Aid Corp., the court ruled that ACE had no duty to defend Rite Aid, emphasizing that while addiction caused harm, the plaintiffs’ claims centered on Rite Aid’s alleged contribution to the public health crisis, which did not trigger coverage under CGL policies.
- This reversal underscores how courts may reject arguments that addiction constitutes “bodily injury” when the focus of the claims involves business practices rather than direct physical harm.
- Video game companies should be mindful of this case and potential pitfalls when crafting the similar arguments that psychological addiction resulting in harmful behavior qualifies as bodily injury under their CGL policies.
Indeed, and as explored in the next section, insurers may invoke exclusions to deny coverage, such as exclusions for “intentional acts.”
Directors and Officers (D&O) Insurance: If addiction-related lawsuits target corporate executives for failing to manage the risks associated with game design, D&O policies could come into play. Some D&O policies also provide coverage for the corporations themselves. These policies typically cover legal actions for mismanagement or breach of fiduciary duties. In the context of addiction claims, D&O insurance could cover allegations that executives ignored warnings about the addictive potential of in-game features or failed to implement player safeguards.
- Case Example: In North Carolina Mutual Whole Company v. Federal Insurance Company, the U.S. District Court for the Middle District of North Carolina found that a drug wholesaler’s D&O policy covered over 100 lawsuits related to the opioid crisis. The insurers argued that the contractual liability and professional services exclusions applied, but the court found these arguments unconvincing:
- Regarding the contractual liability exclusion, the court stated: “None of the claims against Mutual Drug are based on any contract, and [the insurer] has pointed to no language in any of the complaints that relies on or even mentions any contract to which Mutual Drug is a party.” Most of the underlying claims against Mutual Drug involved duties imposed by common law or from regulations. The court noted that simply because Mutual Drug used contracts as part of its business is too attenuated of a connection to conclude that the claims must arise from a contract.
- Regarding the professional services exclusion, the policy defined “professional services” as “services which are performed for others for a fee.” Based on this language, the insurer argued that Mutual Drug’s compliance reviews for customers were “services” for a fee. The court noted that the insurer “point[ed] to nothing to indicate that Mutual Drug charged a specific fee to undertake compliance duties on behalf of any customer.” Further, the insurer failed to point to any claim in the underlying suits involving an allegation that Mutual Drug provided any professional services to the plaintiffs.
This reasoning could apply to video game manufacturers or their directors and officers facing similar hurdles seeking D&O coverage related to addiction lawsuits.
Errors and Omissions (E&O) Insurance/Professional Liability: E&O insurance, also called professional liability insurance, is designed to cover claims arising from alleged failures to provide professional services. In the gaming industry, if a lawsuit alleges that the company failed to provide safeguards to prevent gaming addiction, E&O policies might provide coverage. However, game developers should carefully review their policies to see whether exclusions for game-related risks apply.
Product Liability Insurance: Game developers that have product liability policies might be able to secure coverage if their games are accused of causing harm. This type of coverage is particularly relevant to addiction-related lawsuits, where plaintiffs claim that the design of the game itself caused harm. However, as with other types of insurance, product liability policies may have exclusions, so companies should review them closely to ensure addiction-related claims are covered.
Exclusions for Intentional Acts vs. Unintended Consequences of Intentional Acts
One of the most significant hurdles for video game manufacturers seeking coverage is the potential application of intentional acts exclusions. Insurers might argue that game design elements—such as reward systems, addictive mechanics, or monetization strategies—are intentional actions designed to engage—indeed, to addict—users.
However, there is a distinction between intentional acts and the unintended consequences of those acts. While manufacturers may intentionally design games with engaging features, it does not necessarily follow that they intend to cause addiction or harm to players. This distinction mirrors coverage disputes in other industries, such as the opioid addiction litigation and the tobacco industry. In those cases, manufacturers have sometimes successfully argued that while they intended to produce and sell their products, they did not intend the harmful consequences, thereby preserving coverage under their insurance policies.
For instance, in opioid cases, some manufacturers have sought coverage by emphasizing that while they intended to produce opioids, they did not intend for the widespread addiction crisis to occur. Courts are split on this issue:
- Case Example Finding Coverage: In Liberty Mutual Fire Insurance Co. v. JM Smith Corp., Liberty Mutual sought a declaratory judgment that it had no duty to defend or indemnify JM Smith Corporation, a pharmaceutical distributor, in a lawsuit brought by the State of West Virginia. The state alleged that JM Smith contributed to the opioid epidemic by failing to implement sufficient controls to detect and report suspicious drug orders. The U.S. District Court for South Carolina ruled in favor of JM Smith, finding that Liberty Mutual had a duty to defend the company under itsCGL policy. Liberty Mutual appealed, arguing that the West Virginia lawsuit did not allege an “occurrence” under the policy, as the claims were based on intentional misconduct, not accidents. The Fourth Circuit Court of Appeals affirmed the district court’s ruling, holding that the West Virginia complaint included claims of negligence, which triggered the possibility of coverage under the CGL policy. Even though some of the alleged acts were intentional, the court determined that the harms resulting from those actions were not necessarily foreseeable, thus potentially constituting an “occurrence” under the policy. As a result, Liberty Mutual had a duty to defend JM Smith in the underlying lawsuit.
- Case Example Precluding Coverage: In Travelers Property Casualty Co. of America v. Actavis, Inc., the California Court of Appeal held that the claims for which the insured sought coverage did not arise from an “accident” within the meaning of the policies. The underlying complaints alleged that the manufacturer knew that opioids were unsuited to treatment of “chronic long-term, nonacute pain and knew that opioids were highly addictive and subject to abuse, yet engaged in a scheme of deception in order to increase sales.” The court relied on this allegation to find that the consequences of the manufacturer’s promotion of opioid use produced nothing unexpected, independent, or unforeseen.
Video game addiction is arguably a less recognized harm than opioids or tobacco. While opioids carry a well-documented risk of addiction, the scientific and medical community is still debating the extent and causes of gaming addiction. This could support arguments that gaming addiction was not a known risk at the time of the game’s design, potentially allowing for broader insurance recovery.
Best Practices for Video Game Manufacturers
Proactive Risk Management: Beyond securing insurance coverage, developers should take steps to mitigate the risk of addiction-related lawsuits. Implementing parental controls, issuing clear warnings about excessive gameplay, and limiting in-game purchases and microtransactions can reduce exposure.
Policy Review and Endorsements: Regularly reviewing insurance policies helps ensure that companies are protected against addiction-related claims. Working with brokers to secure endorsements that broaden coverage—especially regarding exclusions for intentional acts—can help prevent coverage gaps. It pays to engage qualified insurance coverage counsel to identify potential barriers to coverage.
Notice to Insurers: Timely notice is critical when facing a lawsuit. Most insurance policies require companies to notify the insurer soon after becoming aware of a claim. Many policies, indeed, provide no coverage if a claim is not reported during the policy period or a specified “extended reporting period.” Failing to do notify an insurer could result in a denial of coverage. Video game developers should ensure they provide prompt notice to insurers of any addiction-related claims.
Hire an Insurance Expert: It is important to retain specialized counsel that can advise on policy placement tailored to video game manufacturers and help secure coverage that addresses the risks unique to that industry, including addiction-related claims and intellectual property disputes.
Conclusion
As lawsuits around video game addiction continue to evolve, developers should explore their insurance policies as a critical resource for financial recovery. Timely notice to insurers, careful navigation of potential coverage disputes, and working with experienced coverage counsel are essential steps to securing the broadest protection possible. In an era of increasing regulatory scrutiny, insurance recovery can provide game companies with the financial support needed to defend against these claims.
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