The Hidden C-Suite Risk Of AI Failures

Article Date: 2025-09-22T11:30:33+00:00
Source: https://corpgov.law.harvard.edu/2025/09/22/the-hidden-c-suite-risk-of-ai-failures/

Summary

Insurers are inserting broad AI exclusions into liability policies (cyber, E&O, D&O and professional liability) that can preclude coverage for claims “based upon, attributable to, arising out of, or related to” any use of artificial intelligence. These exclusions often apply even where AI played a negligible role or where the AI belonged to a third party. The effect: directors, officers and organisations may unknowingly face uncovered liabilities for AI-related failures, disclosure issues or third-party AI problems. The article outlines how ambiguous definitions of “artificial intelligence,” existing professional-services limits and standard exclusions for bodily injury, privacy or professional services can combine to leave firms exposed. It recommends identifying an organisation’s AI risk profile, closely reviewing policy language at renewal, seeking removal or tightening of AI exclusions, and considering affirmative AI liability products while engaging brokers and coverage counsel early.

Key Points

Insurers are introducing broad AI exclusions that can bar coverage for any claim even remotely connected to AI use.
Exclusions’ sweeping wording may exclude claims where AI only played a minor, indirect or third-party role.
Definitions of “artificial intelligence” vary; unclear scope increases uncertainty for policyholders and insurers alike.
Cyber, E&O and D&O policies can all be affected — creating gaps where a primary AI failure and follow-on investor or regulator suits are excluded across policies.
Professional liability and E&O policies may limit cover to services provided by natural persons or to software developed by the insured, excluding many AI scenarios.
Affirmative AI liability products are emerging but may not yet fill every gap; bespoke negotiation and counsel are essential.
Practical next steps: map your AI exposures, review policy definitions and exclusions at renewal, seek clearer wording or removal of exclusions, and consult experienced brokers and coverage lawyers.

Why should I read this?

If you sit on a board, run risk, buy insurance or sign off tech projects — this is one of those quiet-but-dangerous things you need to know about. Insurers are quietly carving out AI risk and the wording is broad enough to bite back at claims you thought were insured. Read this so you don’t wake up to an uncovered lawsuit because a vendor’s chatbot misbehaved or your cyber-AI missed an intrusion.

Author take

Punchy and direct: this isn’t just a niche insurance tweak. It’s a systemic gap that could leave C-suite executives and organisations exposed. If you assume legacy policies cover AI-related losses, that’s now a risky bet. Treat renewals as a battlefield — push for clear definitions, narrow exclusions, or affirmative cover.

Context and relevance

This sits at the intersection of three trends: rapid AI adoption across industries, litigants and regulators scrutinising AI use and disclosure, and insurers reacting by limiting traditional coverage. For governance, legal and risk teams the piece is immediately relevant — it explains how standard policy language can become a blind spot as AI proliferates in healthcare, finance, software development and cyber-defence.