Are You Covered for the Risk?  Directors & Officers (D&O) Insurance

D&O policies cover claims against directors, officers, and sometimes the company itself for alleged mismanagement, breach of fiduciary duty, or securities law violations.

AI-related D&O claims are emerging. One example is so-called “AI washing,” where a company publicly claims advanced AI capabilities that it has not actually developed. In response, shareholders may allege material misrepresentation claims against the company

Some D&O insurers are developing AI-specific exclusions. Certain proposed “absolute” exclusions would bar coverage for “any actual or alleged use, deployment, or development of Artificial Intelligence.” Such exclusions could eliminate coverage for:

• Discrimination claims tied to AI resume screening tools;
• Negligence claims involving AI-driven contract platforms;
• Allegations that boards failed to oversee AI risk governance.

Commercial General Liability (CGL)

CGL policies typically provide coverage for third-party bodily injury and property damage claims. However, they frequently contain professional services exclusions.

Many standard CGL policies exclude claims arising out of the sale, licensing, or furnishing of software. If an AI-driven product is deemed software-based, this exclusion could create a significant coverage gap.

How to Protect Your Company

1. Conduct a comprehensive coverage review. Examine all policies for relevant insuring agreements, definitions, endorsements, and exclusions.
2. Scrutinize new language. As insurers revise policy forms, assess whether changes expand meaningful protection or simply restrict coverage and increase premiums.
3. Engage your broker and risk managers. Discuss your specific AI use cases and exposures.
4. Consider coverage counsel. An experienced insurance coverage attorney can identify gaps and recommend strategies to mitigate uninsured risk.

AI may drive innovation, but it also demands disciplined risk management. Before deploying AI tools, ensure your insurance program evolves just as thoughtfully as your technology strategy.

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.