The Hidden C-Suite Risk Of AI Failures

Summary

Insurers are introducing broad AI exclusions across liability lines (E&O, cyber, D&O) that can deny defence and indemnity for claims “based upon, attributable to, arising out of, or related to” any use of artificial intelligence. These exclusions are often worded so widely that they can sweep in claims where AI played only a minor role, or where third‑party AI (vendors, partners) was involved. That creates an unrecognised coverage gap for directors and officers, professional services firms and organisations that rely on AI for decision support, cyber defence or customer interactions. While some insurers now offer affirmative AI liability products, policyholders must proactively identify their AI risk profile, review policy definitions and exclusions, and negotiate or purchase appropriate coverage.

Key Points

Insurers are adding sweeping AI exclusions that may bar coverage for any claim connected, even indirectly, to AI.
Exclusions commonly extend to third‑party AI and non‑insured users, increasing the chance that vendor failures void cover.
Cyber, E&O and D&O policies can all be affected — creating the risk of both primary claim and follow‑on investor or regulatory claims being excluded.
Definitions of “artificial intelligence” vary widely; ambiguity creates dispute risk about whether a given system is excluded.
Affirmative AI liability products are emerging but may not yet match a company’s specific exposure or contract needs.
Action steps: map your AI usage, review policy wording annually (especially at renewal), negotiate removal or narrowing of exclusions, and involve brokers and coverage counsel early.

Context and relevance

This matters to boards, general counsel, risk and compliance teams, insurers, brokers and anyone integrating AI into operations. As AI becomes ubiquitous — in clinical decision support, trading algorithms, cyber tools and client portals — the chance that an AI element touches a claim rises. Broad exclusions could leave organisations uninsured for large financial, bodily injury or privacy losses and for the related corporate governance litigation that follows. The trend also intersects with regulatory scrutiny and so has immediate implications for investor disclosure and D&O exposures.

Why should I read this?

Because if you think your D&O, E&O or cyber policy will automatically cover AI mess‑ups, you might be wrong. Read this to spot the traps insurers are slipping into policies and learn what to do before a claim arrives.

Author style

Punchy: this is urgent for senior leaders. If you run or advise an organisation using any form of automated decisioning, this piece amps up why you should check your cover now rather than later.