As companies increasingly integrate artificial intelligence (AI) – particularly generative AI – into day-to-day business operations, insurance carriers are moving quickly to limit their exposure. Several carriers have already introduced new policy exclusions that may significantly narrow coverage for companies that develop, use or rely on AI‑generated content. Recent Insurance Services Office, Inc. (ISO) endorsements aimed at generative AI are only part of the story. Some insurers are now introducing absolute artificial intelligence exclusions that completely eliminate coverage if AI use or development is involved, signaling a somewhat aggressive market response to the recent AI boom.
The First Wave: ISO Generative AI Exclusions in CGL Policies
ISO, the organization that issues standard forms for insurance policies, recently introduced new endorsements that insurers may attach to standard Commercial General Liability (CGL) policies to exclude coverage for losses “arising out of” Generative AI – defined broadly as a machine‑based learning system or model trained on data with the ability to create content or responses, including text, images, audio, video or code. The ISO endorsements include:
- Exclusions Relating to Bodily Injury, Property Damage or Personal and Advertising Injury;
- Exclusions Relating to Personal and Advertising Injury (Coverage B) Only; and
- Exclusions Relating to Products/Completed Operations.
Although these endorsements are optional, they are meant to eliminate coverage for otherwise covered bodily injury, property damage, personal and advertising injury, or completed operations hazards that arise out of Generative AI. For example, Coverage B traditionally applies to claims such as defamation, invasion of privacy, misappropriation of advertising ideas and certain intellectual property‑adjacent torts. However, under these new exclusions, insurers may no longer cover such claims if they stem from AI‑generated content, such as text, images, audio, video or code, regardless of whether the AI tool is developed in‑house or obtained from a third-party.
Even incidental use of AI tools may be sufficient to trigger the exclusion. For example, AI exclusions targeting products‑completed operations hazards is particularly relevant for companies offering AI‑enabled products, software or services whose outputs may contribute to physical harm or damage to property after deployment or sale.
The Escalation: Absolute Artificial Intelligence Exclusions
Despite the ISO endorsements, many carriers are going further by adopting absolute AI exclusions, particularly in management and professional liability policies (including Directors & Officers, Employment Practices and Fiduciary Liability coverage). The broad provisions in these absolute exclusions disclaim coverage for any claim, loss or liability based on, arising out of or attributable to a company’s use of artificial intelligence, including but not limited to:
- The generation or dissemination of any content or communications using AI;
- Failure to detect or identify AI‑generated content created by third parties;
- Allegedly inadequate AI governance, policies, training or controls;
- Breach of any duty relating to the development, deployment or oversight of AI;
- Any product or service that incorporates AI;
- Statements or representations made by chatbots or virtual agents;
- Disclosures or representations about a company’s AI capabilities, risks or strategy;
- Alleged violations of evolving AI‑related laws, regulations or disclosure requirements; or
- Regulatory investigations or demands relating to AI risk management.
Unlike the ISO CGL endorsements, the absolute exclusions currently on the market are not limited to generative AI, particular coverage parts or specific causes of action, but could apply to virtually any AI‑related claim that would have otherwise been covered by these types of policies.
Why These Exclusions Matter
These endorsements reflect insurers’ attempts to adapt to the unpredictable risk of AI. For policyholders, this may mean:
- AI‑related litigation, regulatory inquiries and shareholder actions may become uninsured risks.
- Even disclosures about AI strategy or oversight – often required or encouraged by regulators and investors – could trigger exclusions. [1]
- The risk of AI use is being shifted to businesses, increasing out-of-pocket exposure.
- A rise in coverage gaps where specialized AI or cyber policies are not in place.
- An increase in the likelihood of claim denials where AI plays any role that contributes to a loss, however small.
- Reliance on third‑party AI tools may not avoid the exclusion.
However, where new exclusions arise, new specialty coverages tend to follow. In recent months, AI-specific coverages have emerged in an attempt to fill the potential gaps created by AI exclusions. These policies appear to provide specific protection for AI-related risks that legacy lines of coverage may no longer insure. This rush to introduce exclusions also tends to suggest that current policies without these exclusions may potentially cover AI-related claims and losses.
Looking Ahead: What Companies Should Consider
AI exclusions are not yet universal and strong arguments for coverage still exist where AI is associated with a claim. However, these recent developments suggest that AI risk is becoming a distinct underwriting category, which means companies using AI should expect closer scrutiny at renewal in 2026 and beyond. To avoid coverage gaps and prepare for these changes, businesses should consider:
- Reviewing insurance applications and renewals for AI‑related questions, exclusions or endorsements;
- Assessing internal AI use to identify where insurance may no longer cover certain risks;
- Strengthening Internal AI controls including implementing governance policies for AI use, including human oversight, supervision and approval;
- Discussing anticipated AI use with insurance brokers before renewal;
- Exploring specialized coverage, such as technology errors and omissions or emerging AI‑specific insurance products; and
- Revisiting contracts and indemnities with AI vendors and customers to address any uninsured risk.
As the market continues to adapt to the increasing use of AI, proactive reviews of insurance programs, AI governance structures and contractual risk allocation are important steps for policyholders in order to manage their risk profiles and avoid coverage gaps. To plan for future developments in this rapidly progressing area, businesses should involve legal, risk management, IT and compliance teams in AI risk planning and seek assistance from coverage counsel when faced with denials of claims or reservations of rights that in any way involve AI.
If you have questions about how new insurance exclusions may impact your business coverage, please contact Alana McMullin or Michael Gonzales, or your regular Lathrop GPM attorney.
[1] Further uncertainty stems from whether states or federal law will govern what disclosures, if any, are required of companies. For example, the current administration issued an Executive Order on December 11, 2025, aimed at preempting conflicting state law regulating AI. Among other things, the order provides that the Secretary of Commerce shall evaluate state laws concerning disclosure requirements.