Traditional Insurance Leaves Enterprises Exposed as AI Liability Claims Surge
Generative AI-related lawsuits in the United States grew 978% from 2021 to 2025, yet standard insurance policies offer only fragmented coverage for the liabilities AI systems create, according to a new report from Gallagher Re produced in conjunction with MIT and Testudo Global Inc.
Cumulative GenAI-related lawsuits in the U.S. climbed past 700 between 2020 and 2025. Year-over-year filing increases accelerated to 137% in 2024-2025 from 59% in 2023-2024.
Patent infringement claims accounted for 11.9% of cases, copyright infringement for 11.2%, and personal injury claims tied to privacy violations and misuse of personal data for 10.2%.
Coverage Gaps Across Every Major Policy Line
The report mapped AI-specific risks against cyber, technology errors and omissions, product liability, and commercial general liability policies. It found significant gaps in each.
Cyber insurance generally responds to ransomware or data breaches regardless of whether AI facilitated the attack. It typically does not cover bodily injury, intellectual property infringement, defamation, hallucinations leading to financial loss, or data disclosure via AI outputs.
Technology E&O policies are designed for vendors and developers who supply AI tools - not for the enterprises deploying them. Product liability may respond when AI controls physical devices such as autonomous vehicles, but purely algorithmic failures causing financial loss or discrimination fall outside its scope.
Commercial general liability policies face similar constraints. New ISO exclusions available from January 2026 could remove coverage for personal and advertising injury, bodily injury, or property damage arising from generative AI for companies that adopt the exclusionary language.
A Gallagher survey of 1,250 companies found that 57% identified AI errors, misinformation, and hallucinations as a key risk - the leading concern overall. Legal and reputational risks followed at 56%, and data protection and privacy violations at 55%.
Vendors Shift Risk to Deployers
Courts and regulators are treating AI as a tool rather than an independent legal actor, placing responsibility for its outputs on the deploying organization. Vendor contracts reinforce this dynamic - standard terms typically cap liability at 12 months of fees and offer no performance warranties.
This leaves AI deployers in a difficult position: they lack visibility into how a model was trained yet bear legal responsibility for its outputs. Strict liability does not generally apply to deployers, but liability can still arise from failures to exercise reasonable care, misleading representations, or unmet regulatory obligations.
Specialized Products Begin to Address the Void
Three specialized insurers have developed standalone AI insurance products to address risks that lack coverage in existing policies.
- Munich Re's aiSure provides performance warranties for AI developers and enterprises using internal AI systems.
- Armilla, backed by Chaucer and Axis Capital, launched in 2025 with coverage requiring ongoing model quality assessments.
- Testudo launched in January 2026 with a claims-made product targeting middle to large enterprises deploying generative AI, focused on defending against litigation risks such as copyright infringement and bodily injury claims.
Established carriers including Coalition, AXA XL, Hiscox, and Beazley are clarifying coverage boundaries through endorsements and sector-specific products.
Accumulation Risk Remains Unresolved
The insurance market faces a structural problem: the AI ecosystem's reliance on a small number of foundation model providers means a critical flaw in one widely adopted model could trigger claims across thousands of unrelated policyholders simultaneously.
Unlike traditional catastrophe scenarios with geographic or sectoral boundaries, AI failures can propagate instantly across industries and borders. This accumulation risk remains largely unquantified and unpriced.
For insurance professionals, the gap between AI deployment growth and policy coverage means conversations with enterprise clients about AI for Insurance and Generative AI and LLM risks are no longer optional. The coverage landscape is shifting faster than most legacy policies can accommodate.
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