Business Law Guidance on AI Risk and Insurance Coverage
- Todd Nurick
- 3 minutes ago
- 4 min read
Artificial intelligence is now embedded in day-to-day business operations. Companies rely on AI tools for document review, forecasting, customer interactions, analytics, marketing, and internal decision-making. What many business owners do not realize is that their insurance coverage may not align with how these tools are actually being used.
In practice, this misalignment often comes to light only after a problem arises. A claim is submitted, expectations are high, and the response from the insurer is more limited than anticipated. At that point, the issue is no longer theoretical.
As a business attorney licensed in Pennsylvania and New York, Todd Nurick of Nurick Law Group regularly advises companies navigating this growing gap between technology adoption and risk allocation. This type of business law guidance on AI risk has become increasingly important as AI use accelerates faster than insurance policy language evolves.
Where Business Law Guidance on AI Risk Often Breaks Down
Insurance policies are written around defined categories of risk. Artificial intelligence does not always fit neatly within those categories, particularly when policies were drafted before AI became a routine business tool.
AI-related losses frequently touch multiple coverage areas at once, including cyber insurance, professional liability, errors and omissions coverage, and directors and officers insurance. When a claim spans multiple policies, insurers tend to focus on exclusions, definitions, and causation. That is where coverage disputes often begin.
Cyber Insurance Is Not a Catch-All
Many businesses assume that if AI is involved in a data issue, cyber insurance will apply. That assumption is not always correct.
Cyber policies are typically designed around unauthorized access, security breaches, or defined privacy events. If an AI system mishandles data due to improper configuration, flawed training data, employee misuse, or reliance on automated output rather than a traditional breach, coverage may be contested.
Some policies now include explicit exclusions or limitations related to artificial intelligence, automated decision-making, or data processing activities that fall outside narrowly defined security incidents.
Professional Liability Coverage Has Its Own Limits
Companies that rely on AI for analysis, recommendations, or client-facing work often expect professional liability or errors and omissions coverage to apply if something goes wrong.
In reality, many policies exclude losses tied to software, algorithms, or automated systems unless specific endorsements are in place. Others limit coverage when an alleged error arises from reliance on third-party tools or technology outside the insured’s direct control.
From a business law perspective, this is where business law guidance on AI risk becomes essential. The question is not just whether a loss occurred, but how the policy defines responsibility and causation.
Directors and Officers Exposure Is Increasing
AI risk is no longer just an operational issue. It is a governance issue.
Boards and executives are increasingly expected to understand how AI is being used within the organization and what controls are in place. When companies adopt AI without clear policies, oversight, or escalation procedures, claims may allege failures of supervision or decision-making.
Directors and officers insurance can provide important protection, but it is not unlimited. Exclusions related to technology, regulatory matters, or professional services may apply, particularly when AI use intersects with business strategy and oversight.
Vendor Contracts Can Create a False Sense of Security
Another common assumption is that AI vendors will bear responsibility if something goes wrong. In practice, many AI vendor agreements aggressively limit liability, disclaim responsibility for outputs, and shift risk back to the customer.
When vendor protections are thin and insurance coverage is uncertain, businesses can find themselves exposed on multiple fronts. This is a recurring issue in contract reviews and transactions involving AI-driven tools.
Practical Business Law Guidance on AI Risk for Companies
Managing AI-related insurance risk does not require abandoning technology. It does require intentional planning.
From a business law standpoint, companies should consider:
Identifying where AI is actually used across the organization
Reviewing insurance policies with AI use specifically in mind
Coordinating legal, insurance, and technology discussions
Evaluating vendor contracts for risk-shifting provisions
Updating internal policies governing AI use
Documenting oversight and decision-making processes
These steps are about alignment, not alarm.
Final Thoughts
AI is evolving faster than insurance policy language. That gap is where unexpected exposure tends to surface. Businesses that assume coverage exists without confirming how policies apply to AI use may be taking on risk they did not intend.
Todd Nurick and Nurick Law Group provide business law guidance to companies in Pennsylvania, New York, and nationally on how AI adoption affects contracts, governance, insurance alignment, and overall risk management.
This article is for informational purposes only and is not legal advice. Reading it does not create an attorney–client relationship. Todd Nurick and Nurick Law Group are not your attorneys unless and until there is a fully executed written fee agreement with Todd Nurick or Nurick Law Group.
Sources
National Association of Insurance Commissioners, guidance on artificial intelligence and insurance risk
Federal Trade Commission, business guidance on artificial intelligence accountability
National Institute of Standards and Technology, AI Risk Management Framework
Insurance Services Office, standard policy language and emerging exclusions
Industry analysis on AI-related underwriting and coverage trends