/>iAs businesses integrate artificial intelligence (AI) into their operations, the potential for AI-associated risk increases. The recently filed lawsuit, A.F. et al. v. Character Technologies, Inc. et al., illustrates the gravity of such risk. The lawsuit not only highlights the potential risks associated with products utilizing AI technology but also provides an illustration of how insurance can help to mitigate those risks.
The Character Technologies Allegations
In Character Technologies, the plaintiffs allege that Character Technologies’ AI product poses various risks to American youth, including enhancing the risk of suicide, self-mutilation, sexual solicitation, isolation, depression, anxiety, and harm toward others. The complaint alleges that the AI’s design and data promote violent and sensational responses by youth. The complaint provides explicit examples of AI-directed conduct, including instances where the AI allegedly suggested that minors undertake violent and self-injurious actions as well as encouraging aggressive behavior towards 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 into legal actions. For instance, general and excess liability insurance typically covers the cost of defending and settling lawsuits premised on bodily injury or property damage, as in Character Technologies. General liability policies broadly protect businesses from claims arising from business operations, products, or services. Where AI is deployed as part of the insured’s business operations, lawsuits arising from that deployment should be covered unless specifically excluded.
As AI systems become more sophisticated and embedded into 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 can we expect questions concerning the scope and availability of coverage for AI-related claims and lawsuits. Businesses utilizing AI would be well served, therefore, by carefully reviewing their insurance, including their general liability policies, to understand the extent of their coverage in the context of AI and consider whether additional endorsements or specialized policies may be necessary to fill any coverage gaps.
Furthermore, as AI risks become more prevalent, businesses might wish to scrutinize other lines of coverage too. For example, directors and officers (D&O) insurance responds to allegations of improper decisions by company leaders concerning the use of AI, while first-party property insurance should apply to instances of physical damage caused by AI, including resulting business interruption loss.
Of course, not all AI risks may be covered by standard legacy insurance products. For instance, AI models that underperform could lead to uncovered financial losses. Where resulting losses or claims do not fit the contours of legacy coverages, new AI-specific insurance products like MunichRe’s aiSure may fill the gap. Conversely, some insurers like Hamilton Select Insurance and Philadelphia Indemnity Company are introducing AI-specific exclusions that may serve to widen coverage gaps. These evolving dynamics make it prudent for businesses to review their insurance programs holistically to identify potential uninsured risks.
To manage AI-related risks effectively, companies may wish 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 engaging with insurance carriers about AI-related exposures can also be important. Businesses may also want to work with insurance brokers and legal advisors to review existing policies and tailor coverage to address AI-specific risks adequately.
In sum, Character Technologies highlights potential risks businesses face with AI deployment and underscores the potential importance of comprehensive insurance strategies. As AI becomes increasingly important to business operations, companies might consider their insurance needs early and often to guard against unforeseen challenges. By staying informed and proactive, businesses can navigate the evolving landscape of AI risks and insurance, ensuring their continued success in an increasingly AI-driven world.
