Synthetic intelligence (AI) is en vogue. Because it quickly reshapes industries, corporations are racing to combine and market AI–pushed options and merchandise. However how a lot is an excessive amount of? Some corporations are discovering out the laborious manner.
The authorized dangers related to AI, particularly these going through company management, are rising as shortly because the know-how itself. As we defined in a latest publish, administrators and officers danger private legal responsibility, each for disclosing and failing to reveal how their companies are utilizing AI. Two latest 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 satisfactory 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 observe of exaggerating or misrepresenting the function AI performs in an organization’s services or products. Simply final week, two extra securities lawsuits have been filed in opposition to company executives based mostly on alleged misstatements about how their corporations have been utilizing AI applied sciences. These newest lawsuits, very like the Innodata and Telus lawsuits we beforehand wrote about, function early warnings for corporations 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 in opposition to 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 traders to buy the corporate’s securities at “artificially inflated costs.”
Quiero v. AppLovin Corp.
The same lawsuit was filed the subsequent day in opposition to cell know-how 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 grievance alleges, amongst different issues, that AppLovin misled traders by misleadingly touting its use of “slicing–edge AI applied sciences” “to extra effectively match commercials to cell video games, along with increasing into net–based mostly advertising and e–commerce.” In response to the grievance, these deceptive statements coincided with the reporting of “spectacular monetary outcomes, outlooks, and steering to traders, all whereas utilizing dishonest promoting practices.”
Danger Mitigation and the Function of D&O Insurance coverage
Our latest posts have proven how AI can implicate protection below all traces 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, corporations could want to assess their D&O applications from a number of angles to maximise safety in opposition to AI–washing lawsuits. Key concerns embrace:
- Coverage Evaluate: Making certain that AI-related losses are lined and never excluded below exclusions like cyber or know-how 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 remove gaps in protection.
- AI-Particular Insurance policies: Contemplating the acquisition of AI–centered endorsements or standalone insurance policies for added safety.
- Govt Safety: Verifying satisfactory protection and limits, together with “Facet A” solely or difference-in-condition protection, to guard particular person officers and administrators, significantly if company indemnification is unavailable.
- New “Chief AI Officer” Positions: Chief info safety officers (CISOs) stay vital in monitoring cyber–associated dangers however usually are not the one rising positions to suit into present insurance coverage applications. Though not a standard C–suite place, an increasing number of corporations 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 throughout the scope of D&O and administration legal responsibility protection is crucial to affording safety in opposition to AI–
In sum, a proactive strategy—particularly when inserting or renewing insurance policies—will help mitigate the chance of protection denials and improve safety in opposition to AI–associated authorized challenges. Partaking 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.
