AI Exclusions Are Quietly Gutting Your Insurance—Here’s How to Protect Your Firm

Cybersecurity: Tips From the Trenches

Artificial intelligence (AI) is everywhere—in legal research tools, “smart” assistants drafting contracts, and probably even in that partner’s polished brief. The legal profession can’t avoid it, and neither can the insurance industry. Yet, while cyber insurers are holding firm on AI risks, other key coverage lines are quietly shifting—and not in your favor.

Cyber Insurers Aren’t Running for the Hills

Surprisingly, cyber insurers are not panicking over AI. Some are even adding endorsements to confirm coverage for AI-related incidents. They see AI as an enhanced version of familiar risks. Deepfakes, social engineering, and AI-powered phishing aren’t new—they’re just faster and harder to detect.

The consequences can be serious. Picture a deepfake video of your CFO authorizing a fraudulent transfer. The financial and reputational damage could be huge. Still, cyber insurers signal they anticipated these risks, and coverage remains intact.

Where The Exclusions Are Creeping

The real risk lies outside cyber policies. Lines like management liability, directors and officers (D&O), errors and omissions (E&O), employment practices, fiduciary, and crime coverage are introducing broad AI exclusions. Some carriers have “absolute” exclusions that remove coverage for any actual or alleged use, deployment, or development of Artificial Intelligence.

That’s a blunt instrument. Consider the impact:

• A discrimination case involving an AI résumé screening tool? Excluded.
• A negligence claim tied to an AI-driven contract review platform? Excluded.
• A fiduciary duty allegation over board oversight of AI risks? Also excluded.

Even routine disputes might turn into battles over AI’s involvement. This shifts risk back onto firms and clients—often without them realizing it.

Why Lawyers Should Pay Attention

Lawyers need to watch this closely from two angles. First, check your own firm’s policies—AI exclusions might already be there unnoticed. Second, clients will expect you to identify these risks in their coverage. Missing them could harm trust and credibility.

We’ve seen this before with “silent cyber” risk sneaking into property and liability policies, leading to coverage disputes. Insurers eventually responded with exclusions and clarifications. AI is headed the same way—but the exclusions are appearing faster and with less precision.

What To Do About It

Here’s how firms and clients can stay ahead:

• Review policies carefully. Don’t assume D&O or E&O coverage includes AI-related events. Watch out for vague or undefined exclusion language.
• Push for clarity. If there’s an exclusion, negotiate clear definitions. What counts as AI? A predictive text feature? A chatbot? The less defined, the more potential for denial.
• Explore affirmative options. Some insurers now offer endorsements or new products covering AI risks. If AI tools are central to your operations, investigate these options.
• Work closely with brokers and risk managers. They often spot new exclusions early and can help secure fitting coverage.

Remain Calm and Vigilant

Cyber insurance remains a reliable option. But AI exclusions are creeping into other policies, drafted broadly enough to cause future headaches. No need to panic—but do pay attention. These exclusions are already here.

Be proactive. The AI tools making your firm more efficient could also be the reason your insurance claim gets denied. Review your coverage this quarter before AI exclusions spread any further.