AI risks and insurance key lessons from recent litigation

As companies integrate artificial intelligence (AI) into their operations, the potential for AI-associated risk increases. The recently filed lawsuit, AF et al. w. Character Technologies, Inc. et al.illustrates the seriousness of such a risk. The lawsuit not only highlights the potential risks associated with products using AI technology, but also provides an illustration of how insurance can help mitigate those risks.

The Character technologies Claims

IN Character technologiesThe plaintiffs allege that Character Technologies’ AI product poses various risks to American youth, including increasing the risk of suicide, self-mutilation, sexual solicitation, isolation, depression, anxiety and harm to others. The complaint alleges that AI’s design and data encourage violent and sensationalized reactions from youth. The complaint provides explicit examples of AI-directed behavior, including instances where the AI ​​allegedly suggested that minors perform violent and self-injurious acts as well as encourage aggressive behavior toward others.

Insurance Implication of Character technologies

Character technologies illustrates how traditional liability insurance can serve as an important first line of defense when AI-related risks materialize in litigation. For example, general liability insurance and deductible insurance typically cover the costs of defending and settling lawsuits based on personal injury or property damage, as in Character technologies. General liability policies broadly protect businesses against claims arising from business operations, products or services. Where AI is deployed as part of the insured’s business operations, litigation arising out of that deployment should be covered unless specifically excluded.

As AI systems become more sophisticated and embedded in business operations, products and services, their potential to inadvertently cause harm may increase. This evolving risk landscape means that legal claims involving AI technologies can be expected to increase in frequency and complexity. So, too, we can expect questions regarding the scope and availability of coverage for AI-related claims and lawsuits. Businesses using AI would therefore be well served to review their insurance policies, including their general liability policies, to understand the scope of their coverage in relation to AI and consider whether additional endorsements or specialized policies may be required to fill any coverage gaps .

Also, as AI risks become more prevalent, companies may want to explore other lines of coverage as well. For example, directors and officers (D&O) insurance responds to allegations of inappropriate decisions by business executives regarding the use of AI, while first-party property insurance should cover cases of physical damage caused by AI, including business interruption loss.

Of course, not all AI risks are covered by standard legacy insurance products. For example, AI models that underperform can lead to uncovered financial losses. Where resulting losses or claims do not fit the contours of legacy coverage, new AI-specific insurance products such as MunichRes aiSure can fill the gap. Conversely, some insurers such as Hamilton Select Insurance and Philadelphia Indemnity Company are introducing AI-specific exclusions that may serve to widen coverage gaps. This evolving dynamic makes it prudent for companies to review their insurance programs holistically to identify potential uninsured risks.

To effectively manage AI-related risks, companies may want to conduct thorough risk assessments to identify potential risks. This could involve evaluating the data used for AI training, understanding AI decision-making processes and anticipating unintended consequences. Proactively working with insurers on AI-related exposures can also be important. Companies may also want to work with insurance brokers and legal counsel to review existing policies and tailor coverage to appropriately address AI-specific risks.

In summary Character technologies highlights potential risks companies face with AI implementation and emphasizes the potential importance of comprehensive insurance strategies. As artificial intelligence becomes increasingly important to business operations, companies can consider their insurance needs early and often to protect against unforeseen challenges. By remaining informed and proactive, companies can navigate the evolving landscape of AI risk and insurance and ensure their continued success in an increasingly AI-driven world.