Navigating the Risks and Exposures of Artificial Intelligence: Essential Insurance Coverage for AI‑Related Claims

Artificial intelligence is transforming industries and streamlining processes at a dizzying pace. There’s a lot we don’t understand about AI, including the risks and exposures inherent in incorporating AI into our businesses and lives.

What follows is a look at the potential risks and exposures associated with AI, and a rundown of the essential lines of insurance coverage needed to protect against AI-related claims.

Risks and Exposures in Artificial Intelligence

Data Security and Privacy Breaches

AI systems rely heavily on large volumes of data, which may include sensitive personal information. Unauthorized access, data leakage, or misuse of this data can result in privacy breaches, leading to potential legal liabilities and reputational damage.

Algorithmic Bias

AI algorithms can inadvertently perpetuate and even amplify existing biases present in its own training data. Discrimination based on race, gender, age, or other protected characteristics can occur, leading to potential lawsuits, regulatory fines, and reputational harm.

Intellectual Property Infringement

AI systems may inadvertently use copyrighted or patented material in their output, leading to infringement claims. Furthermore, as AI becomes more advanced, questions about the ownership of AI-generated content may arise, potentially leading to intellectual property disputes.

Malfunction and System Failure

AI systems can experience malfunctions, errors, or failures, which may result in financial losses, property damage, or bodily injury. In some cases, these failures can be attributed to a lack of proper maintenance, design flaws, or human error.

Misrepresentation and False Advertising

AI-generated content, such as advertisements or recommendations, may be subject to false advertising or misrepresentation claims if the information provided is incorrect, misleading, or deceptive.

Liability for AI-Enabled Products and Services

As AI technologies are increasingly integrated into various products and services, companies may be held liable for defects, malfunctions, or injuries caused by the AI components in their offerings.

Essential Insurance Coverage for AI-Related Claims

Cyber Liability Insurance

Cyber liability insurance is crucial for businesses utilizing AI technologies, as it covers losses resulting from data breaches, cyberattacks, and other digital threats. This coverage can help pay for expenses related to incident response, regulatory fines, legal defense, and customer notifications.

Errors and Omissions (E&O) Insurance

Errors and omissions insurance, also known as professional liability insurance, covers claims arising from negligence, errors, or omissions in the provision of professional services. For AI developers, consultants, and service providers, E&O insurance can help protect against allegations of algorithmic bias, intellectual property infringement, and system failures.

Directors and Officers (D&O) Liability Insurance

Directors and officers liability insurance protects the personal assets of corporate directors and officers in the event of claims alleging mismanagement, breach of fiduciary duty, or other wrongful acts. As AI becomes more prevalent in corporate decision-making, D&O insurance can help shield executives from potential AI-related liability.

Commercial General Liability (CGL) Insurance

Commercial general liability insurance covers claims of bodily injury, property damage, and personal injury resulting from a business’s operations, products, or services. CGL policies can help protect businesses against claims arising from AI-enabled products or services that cause harm to customers or third parties.

Intellectual Property (IP) Insurance

Intellectual property insurance covers the costs associated with defending or enforcing intellectual property rights. As AI technologies continue to evolve, IP insurance can help businesses protect their valuable innovations and defend against infringement claims.

Product Liability Insurance

Product liability insurance covers claims of bodily injury or property damage caused by a company’s products. For businesses that incorporate AI into their products, this coverage can help address the potential liability arising from defects or malfunctions related to the AI components.

Employment Practices Liability Insurance (EPLI)

Employment practices liability insurance provides coverage for claims related to employment practices, such as discrimination, harassment, or wrongful termination. As AI is increasingly used in hiring, promotion, and other employment decisions, EPLI can help protect businesses from potential algorithmic bias-related lawsuits.

Media Liability Insurance

Media liability insurance covers claims related to content creation, distribution, and publication. For businesses that use AI to generate or curate content, this coverage can protect against claims of defamation, invasion of privacy, or intellectual property infringement resulting from AI-generated content.

Conclusion

As artificial intelligence continues to reshape our world, it is essential for businesses and individuals to understand the risks and exposures associated with AI technologies. By securing the appropriate insurance coverage, you can help protect yourself from AI-related claims and ensure that you continue to benefit from the many advantages AI has to offer. As always, we recommend you find an experienced insurance broker who understands the unique challenges and exposures associated with AI in order to develop a comprehensive insurance strategy tailored to your specific needs.

*Original article, published May 8, 2023. 

*This article is not intended to be exhaustive, nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel or an insurance professional for appropriate advice.

The Mahoney Group, based in Mesa, Ariz., is one of the largest independent insurance and employee benefits brokerages in the U.S. An employee-owned organization. Visit them here.