Will Your Business Insurance Policy Respond to an AI Claim?

Artificial intelligence is quickly becoming part of everyday business. Companies are using AI to write emails, create marketing materials, analyze customer data, screen job applicants, generate contracts, assist with customer service, write software, and make business decisions. But there is a question that isn't being asked nearly enough:

If AI causes a loss, will your Business Insurance policy respond?

Most Business Insurance policies were not originally written with today's use of generative AI in mind. Depending on what happened, several different insurance policies could potentially come into play or there could be a significant coverage gap. Imagine an employee uses an AI tool to prepare advice, specifications, financial information, or a proposal for a customer. The AI produces inaccurate information. Nobody catches the mistake, the customer relies on it, and the customer suffers a financial loss. Who is responsible?

From the customer's perspective, probably your business not the AI platform.

This type of claim could potentially involve Professional Liability or Errors & Omissions (E&O) insurance, depending on the services your company provides and the wording of the policy. Businesses increasingly need to consider whether their E&O coverage adequately addresses services performed with the assistance of AI. You should check your policy for any AI endorsements and exclusions. 

AI Creates Content That Infringes on Someone Else's Intellectual Property

Your marketing department asks an AI platform to create an image, advertisement, article, presentation, or other content.
Months later, another company alleges that the material infringes on its copyright, trademark, or other intellectual property rights. Could your insurance respond? Possibly.

Certain allegations may fall under provisions of General Liability, Media Liability, or Cyber Liability insurance, but intellectual property exclusions can significantly restrict coverage. Simply telling an AI platform to "create something original" doesn't necessarily eliminate the exposure.

An Employee Puts Confidential Information Into AI. This may become one of the biggest AI-related risks facing businesses.

An employee copies customer information, proprietary business data, financial information, employee records, or other confidential material into a public AI platform to help complete a task. Now the business has to determine whether confidential information has been improperly disclosed or exposed. Depending on the circumstances and policy wording, Cyber Liability insurance could become extremely important. Businesses should have clear rules regarding what employees are and are not allowed to enter into AI systems.

AI Contributes to a Bad Employment Decision AI is increasingly being used in recruiting, hiring, employee evaluations, and workforce management.

Suppose an AI-assisted hiring system disproportionately rejects applicants from a protected class and your company is sued for discrimination. The business may argue that the software made the recommendation. That doesn't necessarily mean the business escapes liability. An Employment Practices Liability Insurance (EPLI) policy may potentially respond to allegations involving discrimination, wrongful employment practices, or other covered employment-related claims. Companies using AI for employment decisions should review both their internal procedures and their EPLI coverage.

AI Helps a Cyber Criminal Fool Your Employees

This risk is already changing rapidly. Criminals can use AI to create highly convincing phishing emails, fake invoices, cloned voices, fabricated video calls, and impersonations of executives or vendors. Imagine your controller receives what appears to be a call from the company president:

"We need this $150,000 wired today."

The voice sounds exactly like the president. Except it isn't.

Whether insurance covers the resulting loss can depend heavily on the policy. Cyber insurance and Crime insurance, including social engineering and funds-transfer-fraud coverage, should be carefully reviewed. Having "cyber insurance" doesn't automatically mean every AI-assisted fraud loss is covered.

Determining which policy responds could depend on exactly what caused the loss. The Bigger Problem, your insurance policy may not have kept up with your business. This is where business owners should pay attention.

Your company may operate very differently today than it did when your insurance program was originally designed.

You may now use AI to:

Create content.
Communicate with customers.
Make recommendations.
Analyze confidential information.
Develop software.
Screen employees.
Process transactions.
Make operational decisions.

Those activities can create exposures that didn't exist or weren't nearly as significant just a few years ago. Meanwhile, insurance policies contain definitions, exclusions, sublimits, endorsements, and conditions that determine whether a particular claim is actually covered. AI can make businesses more productive, but it also creates a new layer of liability. Business owners should be asking their insurance agent:

Does my current insurance program contemplate how we're using AI?

That discussion may include reviewing your General Liability, Cyber Liability, Professional Liability/E&O, EPLI, Crime, D&O, Product Liability, and Umbrella coverage. The goal isn't necessarily to purchase another insurance policy every time technology changes. The goal is to make sure the insurance program you already have still matches the business you operate today. Because the worst time to discover an AI-related coverage gap is after the claim happens.

If your company is using artificial intelligence in its operations, now is a good time to review how those activities fit within your existing insurance program. Strive Insurance Group, Inc. can help businesses review their current coverage, identify potential gaps, and evaluate insurance options designed for today's evolving risks. Contact Strive Insurance Group to discuss your business insurance program.