Synthetic intelligence (AI) is en vogue. Because it quickly reshapes industries, firms are racing to combine and market AI–pushed options and merchandise. However how a lot is an excessive amount of? Some firms are discovering out the exhausting method.
The authorized dangers related to AI, particularly these going through company management, are rising as shortly because the expertise itself. As we defined in a current publish, administrators and officers danger private legal responsibility, each for disclosing and failing to reveal how their companies are utilizing AI. Two current securities class motion lawsuits illustrate the dangers related to AI–associated misrepresentations, underscoring the necessity for administration to have a transparent and correct understanding of how the enterprise is utilizing AI and the significance of making certain ample insurance coverage protection for AI-related liabilities.
AI Washing: A Rising Authorized Danger
Constructed on the identical premise as “greenwashing,” AI washing is on the rise. In its easiest phrases, AI washing refers back to the follow of exaggerating or misrepresenting the position AI performs in an organization’s services or products. Simply final week, two extra securities lawsuits had been filed towards company executives based mostly on alleged misstatements about how their firms had been utilizing AI applied sciences. These newest lawsuits, very like the Innodata and Telus lawsuits we beforehand wrote about, function early warnings for firms navigating AI–associated disclosure points.
Cesar Nunez v. Skyworks Options, Inc.
On March 4, 2025, a plaintiff shareholder filed a putative securities class motion lawsuit towards semiconductor merchandise producer Skyworks Options and sure of its administrators and officers within the US District Courtroom for the Central District of California. See Cesar Nunez v. Skyworks Options, Inc. et al. Docket No. 8:25–cv–00411 (C.D. Cal. Mar. 4, 2025).
Amongst different issues, the lawsuit alleges that Skyworks misrepresented its place and talent to capitalize on AI within the smartphone improve cycle, main buyers to buy the corporate’s securities at “artificially inflated costs.”
Quiero v. AppLovin Corp.
An identical lawsuit was filed the subsequent day towards cell expertise firm AppLovin and sure of its executives. See Quiero v. AppLovin Corp. et al. Docket No. 4:25-cv-02294 (N.D. Cal. Mar. 5, 2025).
The Applovin criticism alleges, amongst different issues, that AppLovin misled buyers by misleadingly touting its use of “slicing–edge AI applied sciences” “to extra effectively match ads to cell video games, along with increasing into internet–based mostly advertising and marketing and e–commerce.” In response to the criticism, these deceptive statements coincided with the reporting of “spectacular monetary outcomes, outlooks, and steering to buyers, all whereas utilizing dishonest promoting practices.”
Danger Mitigation and the Position of D&O Insurance coverage
Our current posts have proven how AI can implicate protection beneath all strains of business insurance coverage. The Skyworks and AppLovin lawsuits underscore the particular significance of complete D&O legal responsibility insurance coverage as a part of any company danger administration answer.
As we mentioned in a earlier publish, firms might want to assess their D&O packages from a number of angles to maximise safety towards AI–washing lawsuits. Key concerns embody:
- Coverage Assessment: Making certain that AI-related losses are lined and never excluded beneath exclusions like cyber or expertise exclusions.
- Regulatory Protection: Confirming that insurance policies present protection not just for shareholder claims but additionally regulator claims and authorities investigations.
- Coordinating Coverages: Evaluating legal responsibility coverages, particularly D&O and cyber insurance coverage, holistically to keep away from or get rid of gaps in protection.
- AI-Particular Insurance policies: Contemplating the acquisition of AI–targeted endorsements or standalone insurance policies for extra safety.
- Government Safety: Verifying ample protection and limits, together with “Aspect A” solely or difference-in-condition protection, to guard particular person officers and administrators, notably if company indemnification is unavailable.
- New “Chief AI Officer” Positions: Chief info safety officers (CISOs) stay essential in monitoring cyber–associated dangers however will not be the one rising positions to suit into present insurance coverage packages. Though not a standard C–suite place, increasingly more firms are creating “chief AI officer” positions to handle the multi–faceted and evolving use of AI applied sciences. Making certain that these positions are included inside the scope of D&O and administration legal responsibility protection is important to affording safety towards AI–
In sum, a proactive method—particularly when putting or renewing insurance policies—can assist mitigate the danger of protection denials and improve safety towards AI–associated authorized challenges. Participating skilled insurance coverage brokers and protection counsel can additional strengthen coverage phrases, shut potential gaps and facilitate complete danger protection within the evolving AI panorama.