April 28, 2026|Coverage Compass
AI technology is evolving at extraordinary speed. Its promised benefits are remarkable — increased efficiency, enhanced analytics, automation, and innovation. But alongside those benefits come meaningful risks. And risk makes insurers nervous.
Before implementing AI in your business operations, it is critical to review your insurance policies to determine whether you have coverage for your proposed AI use or whether the use of AI may impact or even void coverage. It is unlikely that a single policy will cover or be impacted all of the potential exposures associated with AI.
The Expanding Risk Landscape
AI technologies are increasingly embedded in core business functions, where errors, bias, hallucinations, or misuse can create significant legal and financial exposure. While many AI-related risks currently fall within the scope of existing policies, insurers are moving to limit their exposure in response to costly and highly publicized AI incidents through exclusions or sublimits
Recent headlines illustrate the risk:
- Google faces a $110 million defamation suit after its AI Overview feature allegedly misstated that a solar company was under investigation.
- Air Canada was ordered to honor a discount fabricated by its customer-service chatbot.
- UK engineering firm Arup reportedly lost $25 million in an AI-generated deepfake scam.
These incidents demonstrate how AI failures can quickly translate into litigation, regulatory scrutiny, reputational damage, and financial loss.
Potential AI-driven risks include:
- Operational shutdowns resulting from AI system malfunctions, triggering business interruption claims;
- Professional liability claims arising from erroneous advice, misrepresentations, or unexplainable AI-generated decisions;
- Product liability exposure where AI-enhanced products cause bodily injury or property damage;
- Shareholder or fiduciary claims alleging failure to oversee or mitigate AI-related risks.
Insurers Move to Limit Exposure
Insurers are actively revising policy language.
According to the Financial Times, AIG, W.R. Berkley, and Great American have sought regulatory approval for exclusions allowing denial of claims tied to AI use or integration. A Berkley-drafted exclusion reportedly intended for use across D&O, E&O, and fiduciary policies would broadly bar AI-related claims.
At the same time, some insurers are introducing AI-specific endorsements:
- AXA has released a cyber endorsement addressing generative AI risks and “machine learning wrongful acts.”
- Chubb has agreed to cover certain AI-related incidents while excluding events capable of causing widespread simultaneous harm.
While these endorsements may appear to expand coverage, careful review is essential. Some may narrow protection while presenting the appearance of added coverage.
New specialty products are also emerging. Armilla has introduced insurance designed to cover financial losses tied to malfunctioning or underperforming AI models, including hallucinations, model drift, and unexpected deviations in performance.
The practical reality is that businesses may discover that AI risk increasingly sits on their own balance sheets.
This communication is not intended to create or constitute, nor does it create or constitute, an attorney-client or any other legal relationship. No statement in this communication constitutes legal advice nor should any communication herein be construed, relied upon, or interpreted as legal advice. This communication is for general information purposes only regarding recent legal developments of interest, and is not a substitute for legal counsel on any subject matter. No reader should act or refrain from acting on the basis of any information included herein without seeking appropriate legal advice on the particular facts and circumstances affecting that reader. For more information, visit www.buchalter.com.
