Broad artificial intelligence exclusions are appearing in management liability policies, creating a potential coverage gap for employers using automated hiring tools. The issue is gaining urgency as Mobley v. Workday moves forward in federal court, with a judge allowing key discrimination claims to proceed in June 2026.
The proposed class action alleges Workday's AI-powered screening tools discriminated against applicants based on age, race and disability. Workday has denied that its tools make hiring decisions or discriminate. As the litigation develops, the insurance market's response is splitting three ways: some carriers attach absolute AI exclusions, most policies stay silent, and a handful offer affirmative coverage wording.
Absolute exclusions carve out AI exposure
For now, AI exclusions remain uncommon in employment practices liability insurance. Lucas Roberts, a management liability broker at Burns & Wilcox, said they appear in closer to 10% of the EPL market. Their breadth means even incidental use of AI could become central to a coverage dispute.
"We've been seeing absolute AI exclusions, with carriers right out of the gate carving that exposure completely out," Roberts said. "Should a claim allege at any point that AI was used to discriminate against someone, the carrier could say, 'Our absolute AI exclusion precludes us from considering this because we've specifically carved that exposure out, so we're off the claim.'"
Roberts said the wording is generally placed in the common terms and conditions of a management liability package, rather than added specifically to EPL coverage. It could affect D&O, E&O, fiduciary or employment claims connected to AI. He cautioned against relying on informal assurances that an exclusion is intended only for technology or D&O claims - courts examining a denial focus on the policy and the claim, not informal discussions about what an exclusion was supposed to accomplish.
Most carriers treat algorithms and humans the same way
At the other end of the market, the majority of policies draw no line between an algorithm's decision and a hiring manager's. Chris Williams, employment practices liability product manager at Travelers, said AI-related claims have emerged but are not yet numerous.
"The vast majority of EPL policies do not make a distinction between wrongful employment practices committed by humans versus AI," Williams said. "Thus, absent having a specific AI exclusion on its EPL policy, if a company was sued for discriminating against an applicant or employee due to its AI guidelines, the coverage would respond the same as if the discrimination had been committed by a human."
That policy silence is a red flag for employers because automated systems can replicate patterns in historical hiring data without being explicitly instructed to favor or reject a protected group. Roberts described how a system designed to identify candidates most likely to be hired could learn from previous selections and recommend applicants with similar characteristics. "By doing that, it could accidentally create a discriminatory practice," he said. A handful of carriers, including Counterpart, are now offering affirmative wording clarifying that coverage can respond regardless of whether AI contributed to the alleged conduct.
Regulators push for audits and human oversight
New York City requires certain automated employment decision tools to undergo bias audits, while employers must publish audit summaries and notify affected candidates. Colorado's revised AI law establishes disclosure, recordkeeping and human-review requirements for automated systems used in consequential decisions, including employment, beginning in 2027. For insurance professionals tracking how these requirements intersect with coverage, AI for Insurance resources can help clarify the evolving risk picture.
Until the regulatory landscape becomes clearer, coverage analysis will turn on the policy language and underlying allegations. "If a claim arises from using that technology, you want to make sure that the carrier has your back," Roberts said. If the protection is not in the wording, it may not exist at all.
Why this matters for insurance professionals
Brokers and underwriters need to identify whether a client's management liability package contains an absolute AI exclusion - and if it does, make the gap explicit before a claim tests it. The Workday litigation will set precedent on whether a software vendor or the employer bears responsibility for discriminatory algorithmic outcomes, but policy wording determines who pays for the defense either way. For clients using any automated hiring, screening, or performance evaluation tool, silence in the policy is a risk that demands a conversation now, not after a demand letter arrives.
Your membership also unlocks:
