Insurers Pull Back on AI Liability Coverage as Legal Risks Surge 978%

Artificial intelligence is no longer just a concern for human resources departments—corporate legal teams are increasingly grappling with the technology’s unintended consequences. A report from reinsurance broker Gallagher Re reveals that generative AI-related lawsuits in the United States skyrocketed by 978% between 2021 and 2025.

In response, a growing number of insurance companies are removing AI liability coverage from their standard commercial policies. Berkshire Hathaway, Chubb, and Travelers have all recently gained approval to add “AI exclusion clauses” to their liability policies. These clauses address a broad spectrum of risks, including:

• Employees alleging AI-driven discrimination
• Intellectual property violations, such as AI using copyrighted material without a company’s consent
• Property damage caused by autonomous or robotic systems

The shift leaves many businesses vulnerable to substantial financial losses and may deter corporate AI adoption as executives weigh the risks against the benefits.

“This is highlighting a crucial blind spot for businesses. They are clamoring to join the AI bandwagon, but they have to pause and ask if they’re fully protected.”

Ifeoma Yvonne Ajunwa, Professor at Emory University’s School of Law

Not All Insurers Are Following Suit

While major players like Berkshire Hathaway, Chubb, and Travelers are retracting coverage, not every insurer is taking the same approach. In March, HSB introduced AI liability insurance tailored for small businesses.

“All types of businesses are using AI to do things more quickly and efficiently. At the same time, the AI transformation brings new legal and financial exposures. Business owners may wonder, am I protected? AI insurance helps remove that uncertainty.”

Timothy Zeilman, Global Head of Product Ownership for HSB

Additionally, several smaller insurers—some relatively new—are specializing in AI liability coverage. Some, like Armilla AI (backed by Chaucer Group and Axis Capital), have support from established firms, while others operate independently. This fragmentation complicates decision-making for business owners.

“It is very much the wild west. It highlights the need for precaution. The main thing is to evaluate the company that’s offering this insurance. What is their capitalization? If they’re selling $10 million or $20 million in insurance, how much money does that company actually have? If the insurance is used, will you actually be reasonably confident of a payout?”

Ifeoma Yvonne Ajunwa, Professor at Emory University’s School of Law

Historical Precedent: Lessons from Cyber Insurance

The insurance industry’s current stance on AI liability isn’t without precedent. In the early 1990s, many insurers excluded online activities from standard policies as the internet became ubiquitous, paving the way for “cyber insurance.” Initially focused on IT companies, these policies later expanded to cover data processing errors and online media risks before evolving into a broader specialty category.

Another parallel can be drawn from the healthcare sector, where insurers often refuse to cover new medical procedures or devices until their safety and efficacy are firmly established. This cautious approach may similarly apply to AI adoption in corporate settings.