It’s no surprise given the penetration of artificial intelligence into lives and businesses that it appears insurers are gearing up to exclude AI risk in some of their commercial liability policies.
Three ISO exclusions have garnered more interest from carriers, according to an attorney who practices in the cyber space and an expert who helped write the exclusions.
“There’s been a major shift in the insurance industry’s treatment of AI-related risks and insurers are moving very quickly to limit this exposure,” said Alana McM
ullin, a partner in Lathrop GPM, whose practice focuses on defending clients in complex insurance disputes, products liability, and toxic tort litigation, as well as general liability matters.
She has seen carriers increasingly submit filings with state insurance regulators to be able to use three ISO endorsements. ISO parent Verisk provided the following paraphrased description of the endorsements:
Generative Artificial Intelligence Endorsement CG 40 47: This endorsement excludes coverage for bodily injury, property damage, and personal and advertising injury arising out of generative artificial intelligence for the Comm
ercial General Liability Coverage Part. It contains a definition of generative artificial intelligence.
Generative Artificial Intelligence (Coverage B Only) Endorsement CG 40 48: This endorsement excludes coverage for personal and advertising injury arising
out of generative artificial intelligence for the Commercial General Liability Coverage Part. It contains a definition of generative artificial intelligence.
Generative Artificial Intelligence Endorsement CG 35 08: This endorsement excludes coverage for bodily injury and property damage arising out of generative artificial intelligence applicable to the Products/Completed Operations Coverage Part. It contains a definition of generative artificial intelligence.
“These ISO exclusions were the spark of this AI exclusion boom that’s happened now,” McMullin said. “We’re in the middle of what I’d call an industry-wide reaction to the explosion of AI.”
She believes the increase in filings for the exclusions is likely a prelude to adopting them soon. But how widely they’re used may not be known for some time, at least until renewals start to come in.
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“Insurers are still evaluating their options in real time, so we don’t know yet what each insurer is going to do in regard to AI exclusions or how broad their exclusions
are going to be, or necessarily what lines of coverage are going to contain these exclusions,” McMullin said. “But if history is any guide, we expect and anticipate rapid adoption of some version of an AI exclusion in most lines of coverage.”
Joe Lam, vice president of liability at Verisk, who helped write the ISO endorsements, said he’s been having more conversations with carrier clients about them. However, he added, any new exclusions they introduce tend to garner a lot of interest.
“I would say there’s a high degree of interest whenever we introduce a new endorsement, whether it is a coverage endorsement or an exclusion where we would have the opportunity for our customers to engage on that new material,” he said. “Everyone acknowledges this is new technology that is going to create or introduce new exposures that were never contemplated before, so they are all appreciative of having additional underwriting flexibility to address any type of emerging issue.”
He didn’t know how many insurers are adopting them yet, but he said he expects the exclusions to help create stability in the market.
“At the end of the day it’s insurance, and it is an exchange of a carrier picking up the exposure in exchange for premium; it has to be an understanding of a carrier willing to accept that exposure for the premium that is being collected,” Lam said. “Without exclusions to allow underwriters a level of stability to accept a risk, you run into a situation where they might just walk away from the risk. So, exclusions are very essential in the marketplace.”
