The AI Insurance Frontier: Carriers Move to Limit Liability as Litigation Skyrockets

The rapid integration of artificial intelligence (AI) into the backbone of global business operations has triggered a profound shift within the insurance industry. As AI systems become ubiquitous—powering everything from customer service chatbots and algorithmic trading to complex supply chain logistics—insurers are increasingly viewing these technologies as a source of unpredictable, systemic risk. In a defensive maneuver to curb potential exposure, carriers are now aggressively moving to adopt specific artificial intelligence exclusions across their commercial liability portfolios.

This transition marks a pivotal moment in the relationship between emerging technology and risk management. With legal landscapes shifting and AI-related lawsuits surging, the industry is entering an era of strict underwriting, where the traditional, often "silent," coverage of technology risks is being replaced by explicit, hard-line policy language designed to shield insurers from the unknown.

The Genesis of a New Risk Paradigm

For years, many commercial liability policies provided what industry professionals call "silent coverage" for AI-related risks. Because these policies did not explicitly mention artificial intelligence, they were often interpreted to cover damages arising from AI usage by default. However, as the frequency and severity of AI-related legal challenges mount, the industry’s tolerance for this ambiguity has evaporated.

Leading the charge in this shift is the Insurance Services Office (ISO), a Verisk business, which has introduced standardized endorsements designed to carve out AI-related liabilities from standard commercial policies. These endorsements provide a framework for insurers to clearly state that they will not provide coverage for claims arising from the deployment, development, or failure of AI systems.

Alana McMullin, a partner at the law firm Lathrop GPM—who specializes in complex insurance disputes, products liability, and cyber-related matters—describes the current environment as an "industry-wide reaction to the explosion of AI." According to McMullin, the sheer volume of filings for these ISO endorsements at the state regulatory level suggests that the market is rapidly moving toward a future where AI risks are treated as a distinct, uninsurable, or highly restricted category.

Chronology: From Innovation to Exclusion

The current climate of caution did not happen overnight. The progression of AI from a niche technological pursuit to a pervasive business tool has followed a compressed timeline:

• Pre-2021: AI was viewed largely through the lens of general data privacy or standard technology errors and omissions (E&O). Insurance policies were broad, and specific AI-related litigation was rare.
• 2021–2023: As generative AI gained public prominence, law firms and regulators began noting a rise in intellectual property and privacy-related claims. Insurers began monitoring the "AI risk" with increased scrutiny.
• 2024: The introduction of specialized endorsements—such as the ISO’s new AI-focused forms—marked the beginning of a formalized, industry-wide strategy to exclude or sub-limit coverage.
• 2025: The "AI exclusion boom" reached a fever pitch, with carriers moving to implement these exclusions during policy renewals. Simultaneously, standalone AI exclusions (like those pioneered by carriers such as Berkley) began appearing in high-stakes D&O (Directors and Officers) and fiduciary liability products.

Supporting Data: The Litigation Surge

The move to exclude AI is not merely a preemptive strike born of fear; it is a data-driven reaction to a burgeoning litigation landscape. A recent study by Gallagher provides stark evidence of the risks involved. The data reveals a staggering 978% increase in AI-related lawsuits between 2021 and 2025. Between 2024 and 2025 alone, the volume of AI-related litigation grew by 137%.

The nature of these lawsuits provides a blueprint for why insurers are nervous:

• Patent Infringement (11.9%): Challenges to the very architecture and functionality of AI systems.
• Copyright Infringement (11.2%): Disputes over the training data used to build Large Language Models.
• Personal Injury and Privacy (10.2%): Claims involving the misuse of personal data, violations of "digital dignity," and unauthorized tracking.

These figures illustrate that the liability landscape is not just theoretical—it is actively impacting the bottom line of businesses. For insurers, this creates a situation where the potential cost of claims related to AI could dwarf the premiums collected, particularly if the scope of liability remains undefined.

Official Perspectives: The Balancing Act

The industry’s push for exclusions is characterized by a tension between risk mitigation and market competitiveness.

Joe Lam, Vice President of Liability at Verisk and a key contributor to the development of the ISO endorsements, emphasizes that these tools are intended to provide stability. "Everyone acknowledges this is new technology that is going to create or introduce new exposures that were never contemplated before," Lam explains. He argues that without these exclusions, carriers might simply choose to exit certain lines of coverage altogether rather than accept risks they cannot adequately price.

"It is an exchange of a carrier picking up the exposure in exchange for premium," Lam says. "Without exclusions to allow underwriters a level of stability to accept a risk, you run into a situation where they might just walk away."

However, not all industry experts believe that a blanket exclusion is the only path forward. Alana McMullin notes that market forces may dictate a more nuanced outcome. "Insurers have plenty of reasons to hesitate in adopting these broad exclusions," she notes. "Aggressive exclusions may make their policies less attractive, especially given the pervasive nature of AI in today’s business environment."

McMullin suggests that some carriers may choose to treat AI risk as an opportunity for underwriting innovation rather than exclusion, potentially opting to charge significant additional premiums to cover these risks rather than carving them out entirely.

Implications for Policyholders

The transition toward explicit AI exclusions carries significant implications for the business community. As the market stands, policyholders are in a period of intense uncertainty.

1. The Death of Silent Coverage

Businesses that have historically relied on general liability policies to cover their digital footprint may find that, upon renewal, their coverage has changed significantly. The "silent coverage" they previously enjoyed may be explicitly closed off, leaving them exposed to lawsuits involving AI-driven decision-making, algorithmic bias, or disclosure issues.

2. The Rise of D&O and E&O Vulnerability

Directors and Officers (D&O) and Errors and Omissions (E&O) lines are expected to be the primary battleground. With the introduction of "absolute" AI exclusions—such as those used by Berkley, which exclude liability for the development of AI, the generation of AI content, and the failure to oversee AI policies—corporate leadership faces new levels of personal and organizational risk.

3. The Need for Proactive Mitigation

For policyholders, the strategy must move beyond simply purchasing insurance. McMullin advises that companies must be proactive:

• Audit AI Exposure: Businesses need to map exactly where and how AI is used in their operations.
• Review Policy Language: During renewal periods, businesses should demand transparency from brokers regarding the scope of AI exclusions.
• Invest in Governance: As lawsuits increasingly center on "governance failures" and disclosure issues, robust internal policies regarding AI use are the best form of defense.

Conclusion: A Market in Flux

The insurance industry’s move to exclude AI risks is a defining moment for the digital economy. While insurers argue that these exclusions are essential for maintaining market stability, the long-term impact remains to be seen. As of today, there is no "bellwether" court case to guide how these exclusions will be interpreted by the judiciary, creating a "wait-and-see" atmosphere.

For now, the era of "silent coverage" is drawing to a close. Whether the market eventually settles on broad exclusions or moves toward a specialized, high-premium underwriting model will depend on the evolution of AI litigation and the resilience of the businesses forced to navigate this new, restricted landscape. One thing is certain: in the race to regulate the risks of artificial intelligence, the insurance industry has taken the lead, and policyholders must act quickly to avoid being left unprotected in a digital-first world.