For corporate executives overseeing risk management, the true measure of an insurance program often lies not in what it covers, but in what it excludes. Securing comprehensive coverage requires meticulous attention to the fine print before a policy is bound, paying special attention to the “Exclusions” section of the policy. Understanding these boundaries is critical to ensuring your organization is not left exposed when a significant claim arises.
Exclusionary Language Creates Risk
As business operations evolve alongside rapid technological advancements, insurance carriers continuously adapt their policy language to address emerging exposures. A stark example of this evolution is ther “Act of War” exclusion found on many property insurance policies, which gained prominence following the 2017 Russian-born NotPetya cyberattack. In the aftermath of this breach, Merck was one of hundreds of companies impacted, suffering claims totaling over $1.3 billion. However, their property policy excluded acts of war, resulting in denied coverage despite the fact that Merck was not a willing combatant.
Today, the exponential use of artificial intelligence across organizations of all sizes is creating a similar inflection point for the insurance industry. A recent Wall Street Journal article outlines these new exposures, highlighting the “silent” risk posed by AI. This occurs when a policy does not explicitly mention AI being excluded, which ultimately affords the carrier maximum flexibility for policy interpretation when considering a claim.
Emerging AI Exposures
The practical implications of these unaddressed risks are significant, as AI introduces unique exposures that traditional policies were never designed to contemplate. Executive teams must consider whether their current directors and officers (D&O) or professional liability policies would respond to claims alleging algorithmic bias, intellectual property infringement from generative AI outputs, or financial losses stemming from AI-driven errors. Without explicit affirmative coverage, carriers may successfully argue that these novel, technology-driven liabilities fall completely outside the original intent of the policy.
Looking ahead, we can expect a distinct bifurcation among insurance carriers in how they handle these emerging risks. Many insurers will proactively adopt general liability policy forms that implement stricter, explicitly defined AI exclusions to limit their exposure. Conversely, other carriers will route their underwriting strategy through “Silent AI,” intentionally maintaining ambiguous policy language to maximize the ways they can interpret claims relating to artificial intelligence.
Prepare Strategically
In this shifting landscape, complacency is not an option. Companies must be prepared to work closely with their broker to thoroughly analyze their policies as a result of the AI phenomenon. By identifying silent risks and negotiating precise policy language before binding, organizations can bridge critical coverage gaps. The intersection of AI and insurance is only growing more complicated, but with strategic foresight and expert guidance, executive teams can confidently protect their balance sheets against the unknown.