Great Lakes Wire

Artificial intelligence (AI) is increasingly becoming a central focus for businesses due to its potential to revolutionize operations. However, the introduction of AI also presents new risks such as unforeseen defects and misuse that could lead to legal claims and financial liabilities. Companies using AI products without appropriate insurance coverage may face significant exposure.

The challenge lies in finding suitable insurance policies for these emerging risks, as AI encompasses a wide range of technologies including machine learning, robotics, and natural language processing. Each type carries its own risk considerations when it comes to determining insurance coverage.

Data privacy is one major concern. AI can be exploited by cybercriminals to create sophisticated deepfakes or extract sensitive information from various sources, raising privacy invasion risks. Legal consequences could arise if unauthorized access or malfunctions expose personal data. Tech giants like Alphabet and OpenAI have already faced class action lawsuits over alleged privacy violations.

Intellectual property infringement is another risk area, particularly with generative AI products like ChatGPT. Liability issues may arise if AI systems use data such as artwork or trade secrets without permission.

There are also concerns about physical harm caused by malfunctioning AI products and the risk of impermissible bias in decision-making processes. In 2023, the Equal Employment Opportunity Commission settled an AI hiring discrimination lawsuit involving age-based rejection of applicants.

Several types of insurance policies may address these risks. Cyber insurance might cover incidents where AI plays a role, while intellectual property policies could address infringement issues. Errors and omissions (E&O) insurance might cover professional service errors linked to generative AI use. Commercial general liability (CGL) and product liability insurance are crucial for companies releasing robotic products that interact with consumers.

Due to the evolving nature of AI technology, many existing policies do not explicitly address related issues, leading to uncertainty about coverage scope. Courts have generally not treated AI-related claims differently from others; they apply standard contract interpretation principles to determine coverage based on policy language.

Insurance companies might respond by excluding or limiting coverage for AI-related incidents or increasing premiums due to additional risks. Experts predict a growing demand for specific AI-focused policies similar to how cyber policies emerged previously.

Companies employing any form of AI should assess potential risks associated with their usage and review their current insurance policies' applicability in covering those risks.

For questions regarding existing policy coverage for AI-related matters, Carly Zagaroli or Warner Norcross + Judd’s Insurance Industry Group can be contacted.

Article courtesy of Warner Norcross+Judd.

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