Artificial Intelligence (AI) continues to grow and revolutionize the business world. Artificial intelligence offers new opportunities for innovation, expansion, and efficiency, particularly in data analysis. However, as companies eagerly adopt more AI technologies, the potential for significant liability risks to companies that utilize AI also increases. Without the right AI policies and insurance protection in place for your business, your company could be left dangerously exposed.
Our insurance defense team at MehaffyWeber knows firsthand how unforeseen errors, potential for bias and discrimination, data privacy concerns, security risks, and intellectual property risks can lead to substantial legal claims and significant financial consequences for businesses.
Data Privacy and Security Risks with AI
Data privacy and security risks are a significant concern in the age of AI, presenting a range of risks that require careful attention from businesses. Particularly in the realm of generative AI, cybercriminals are now equipped with tools to create highly convincing deepfakes, such as fabricated images, videos, and audio, for highly targeted phishing scams, identity theft, and corporate espionage, leading to the disclosure of sensitive personal and proprietary information.
Beyond cybercriminals, AI applications may autonomously aggregate and analyze vast amounts of data from various sources, thereby increasing the risk of privacy invasion by potentially compiling comprehensive profiles of individuals without their explicit consent or full awareness.
The very design of AI systems introduces inherent security vulnerabilities that could lead to privacy breaches. If your AI technologies lack robust security protocols, allow unauthorized access, or even experience malfunctions or software glitches, the resulting exposure of sensitive data can leave your company vulnerable to significant legal ramifications and financial penalties.
AI Risk of Bias and Discrimination
AI learns from humans, which means that it is capable of bias and discrimination, something that a company must work hard to protect itself against. The Equal Employment Opportunity Commission (EEOC) settled its first AI hiring discrimination lawsuit in 2023, in which an AI-powered hiring program was found to automatically reject qualified applicants based solely on their age. If not carefully developed and monitored, AI can amplify existing societal biases, resulting in significant legal risks and reputational damage for businesses.
Companies that use AI to make critical business decisions or provide professional advice introduce a heightened risk of legal liability if those AI-driven decisions are later found to be erroneous. If, for example, a financial firm uses AI to recommend investment strategies that are later proven flawed and cause financial harm, the liability could be substantial. Businesses must demand thorough human oversight, rigorous testing, and transparent methodologies to mitigate these inherent risks.
Copyright Infringement and Intellectual Property Risk
Beyond data privacy concerns, AI presents significant liability risks associated with intellectual property (IP) infringement. With generative AI products like ChatGPT, the fundamental operation of the system involves ingesting and processing vast amounts of information from the internet, often including copyrighted artwork, proprietary trade secrets, published writing, and other protected content. The critical issue arises when AI then utilizes or reproduces elements derived from this data in its outputs without proper authorization or licensing. The legal boundaries are still evolving in this complex and uncharted territory.
Suppose an AI system learns from copyrighted material and generates content that is similar or reproduces portions of that material, without permission. In that case, the company may be vulnerable to lawsuits for copyright infringement. The sheer volume and diversity of data consumed by these AI models make it incredibly difficult to track the origin of every output, creating fertile ground for potential legal disputes from content creators, artists, authors, and businesses whose intellectual property (IP) may have been unwittingly utilized.
Ongoing litigation and legislative discussions are actively shaping this emerging area of law. As content creators increase their vigilance, lawsuits alleging IP infringement by generative AI models are already being filed against major AI developers. Businesses leveraging generative AI must therefore exercise extreme caution, consider the origin of the training data used by their AI tools, and understand the potential for their AI-generated outputs to infringe on existing intellectual property rights.
Implementing content moderation through human oversight, exploring licensing agreements for training data, and seeking expert legal counsel on intellectual property (IP) matters are no longer optional but essential for mitigating these substantial risks and ensuring the responsible use of AI.
Mitigating the Liability Risks for Companies That Utilize AI
Given the evolving risks of AI liability, businesses must assess their current insurance profiles to ensure they are adequately protected. Several types of insurance policies work to provide this coverage. Companies may wish to consider policies such as:
- Cyber Insurance Policy – covers a broad spectrum of AI cyber incidents, including data breaches stemming from AI vulnerabilities, ransomware attacks facilitated by AI, and associated regulatory fines.
- Intellectual Property Policy – covers risks associated with AI content generation and copyright infringement.
- Errors and Omissions (E&O) Insurance – offers coverage of negligence, errors, or omissions made while delivering professional services or advice reliant on generative AI.
- Commercial General Liability and Product Liability Insurance – coverage essential for mitigating claims alleging bodily injury or property damage caused by AI-powered products that directly interact with consumers.
- Directors and Officers (D&O) Insurance – protects executives and companies from liabilities stemming from AI-related decisions.
- Employment Practices Liability (EPL) Insurance – Covers risks associated with employment practices that rely on AI.
If your business utilizes AI in any capacity, you may want to consider protecting yourself with insurance policies like these. If you have questions or need guidance on what insurance coverage is right to mitigate your particular AI risks, working with a business lawyer from MehaffyWeber can help.
Contact the Business Law Professionals at MehaffyWeber to Protect Your Company
At MehaffyWeber, we closely track business and AI trends to help you stay ahead of the latest legal changes in the industry and effectively mitigate your company’s risks. Our experienced business lawyers provide guidance and practical solutions for businesses of all sizes and industries, ensuring your legal strategies are as innovative as your technology.
Contact our team today to get your questions answered about how you can protect your company from AI liability risks.