The fact pattern is familiar. Drug companies market a legal and regulated drug, resulting in significant overprescription of that drug. Over time, a public health crisis emerges and annual deaths number in the tens of thousands. There is strong scientific evidence linking the product in question to the public health crisis. State, local and tribal governments incur significant expenses from this crisis.

This fact pattern was present in opioids and in recent years has resulted in large-scale litigation against opioids manufacturers, distributors and retailers. The same fact pattern exists in antibiotics. Are antibiotics the next opioids?

The invention of antibiotics was world-changing and continues to be a simple, life-saving solution to infections. However, evolution began producing antibiotic-resistant bacteria as soon as antibiotics were invented. For many decades, drug companies fought evolution by regularly inventing new antibiotics to keep ahead of emerging resistance. Recently, however, drug makers have mostly ignored this threat, leading to increased resistance in the face of fewer new antibiotics.

Unsurprisingly, the cost of antimicrobial-resistant (AMR) infections has been steadily mounting. The most recent CDC report on antibiotic resistance, published in 2019, estimated that 2.8 million AMR infections occur every year in the U.S. alone, and over 35,000 of those cases are fatal. A study from January 2021 in Clinical Infectious Diseases estimated the annual treatment cost of AMR infections to be $4.6 billion, with costs ranging from $31,000-$74,000 per infection.

High costs alone, though, don’t automatically create an environment ripe for litigation.

With few new patented antibiotics coming to market, drug companies have sometimes attempted to maximize their antibiotic profits by engaging in aggressive marketing campaigns for existing antibiotics. Recent CDC studies have shown that over 30 percent of outpatient antibiotic prescriptions are unnecessary and almost 50 percent of prescriptions are somehow inappropriate (i.e., prescribed unnecessarily or having a mistake in the prescription). If this overuse can be tied to marketing practices, it could implicate everyone from manufacturers to individual doctors in public nuisance and fraudulent marketing lawsuits.

Furthermore, unlike most drugs, which are marketed solely toward doctors, drug makers have created a large market for antibiotics in the meat production industry, both for infection prophylaxis and because animals fed antibiotics grow more quickly. This marketing has been so effective that nearly two-thirds of medically important antibiotics sold in the U.S. are used in the meat production industry despite the fact that many farms have voluntarily discontinued the use of antibiotics. The aggressive marketing of antibiotics for these uses—when we know that antibiotic overuse accelerates the emergence of antibiotic resistance—opens the door to fraudulent marketing and public nuisance lawsuits.

The wider agriculture industry would be at risk. Given their contribution to the antibiotic-resistance epidemic from various practices, including using fertilizer from meat farms with large loads of AMR bacteria, companies as diverse as large agricultural corporations, grocery stores and restaurants could be implicated. As major contributors to climate change, the meat industry is at elevated risk for being targeted in this kind of litigation, especially by environmental activists.

Praedicat has developed scenarios exploring two ways that AMR litigation could be triggered. First, we have all seen outbreaks of bacterial infections due to food contamination. As AMR becomes more prevalent, the likelihood that one of these outbreaks will be tied to AMR bacteria increases, potentially leading to billions of dollars in treatment costs as well as third-party lawsuits and possible recoveries for wrongful death. These lawsuits could target both the specific source of the outbreak (i.e., vegetable producers, meat farms or both) and the drug makers that created the problem in the first place. We estimate that a particularly deadly and widespread AMR outbreak in food could cost up to $90 billion.

The second scenario, more in line with antibiotics being the “next opioids,” envisions that state attorneys general file lawsuits when the accumulated deaths from AMR infections increases to a level similar to that of opioids. In this scenario, we envision state attorneys general attempting to recover public costs and private insurers attempting to recover their own costs of roughly one million antibiotic-resistance-related deaths over 20 years. We estimate that the total potential recovery in this scenario could be as high as $120 billion. However, given the life-saving nature of antibiotics, the fact that some AMR would develop regardless of corporate malfeasance and the uncertainty regarding the extent of the spread of liability to the agricultural sector, damages could amount to substantially less.

Insurers normally think that if they don’t write drug companies, then they are insulated from drug-related litigation. Opioid litigation demonstrates the fallacy of that assumption because it expanded to cover several other actors in the stream of commerce, like retailers, many of whom are insured on occurrence forms, mostly without opioid exclusions.

The scenarios we describe above involve significant portions of the agricultural industry and possibly downstream food industries. Even if proactive carriers added drug or public nuisance exclusions for distributors and pharmacies, it is unlikely they’ve been added for these other business activities. Antibiotic overuse litigation could therefore implicate multiple policy years for a wide array of companies that have used significant amounts of antibiotics historically, even if they’ve phased out their use in recent years.

If antibiotic resistance resulted in litigation, it would not be a “black swan.” It is a widely recognized, commercially driven public health issue. Managing the risk of litigation over AMR infections, among many other risks, is why the insurance industry’s clients buy insurance. At the same time, due to the number of defendants and plaintiffs potentially involved, and its cross-industry footprint, it is incumbent on insurers to underwrite and manage their exposure to this risk.

Similarly, we expect regulators, who are increasingly focused on management of casualty accumulations, to require insurers to report their exposures to scenarios like this. In fact, Lloyd’s of London has already started to address this by developing six new liability scenarios, one of which is a pharmaceutical litigation scenario that, as outlined by the published event description, is based on opioids but could also apply to overprescription of antibiotics. Naturally, these two risks have different defendant footprints, and a robust approach to risk management should explore both the opioids footprint and the potential “next opioids” footprint as well.