TheCorporateCounsel.net

Woodruff Sawyer recently blogged about how the burgeoning use of AI technology is influencing the market for property & casualty, cyber and D&O insurance.  Here’s what the blog has to say about AI’s implications for D&O coverage:

AI’s impact on D&O insurance is multifaceted. The rapid growth and hype around AI have led to inflated valuations for some AI companies, raising concerns about potential securities class actions if these companies fail to deliver on their promises. New laws and regulatory scrutiny around AI—like what has been seen with privacy regulations—could lead to fines and penalties, further increasing D&O risk.

Given these dynamics, companies should reassess their D&O coverage, particularly the limits and scope of coverage for derivative claims. These claims, often filed when directors are accused of failing in their oversight roles and causing significant financial harm to the company, can result in substantial settlements. In most states, including Delaware, companies cannot indemnify directors for settlement in derivative cases—if adequate D&O coverage is not in place, the directors would be responsible for paying the settlement out of pocket.

The blog says that D&O underwriters will scrutinize the board’s oversight of AI risk and whether the company uses AI in a thoughtful manner. AI disclosures will also be front and center in the underwriting process, due to concerns about companies’ “AI-washing” to pump their stock market valuation.

Interested in more on AI risk management and compliance issues? Check out our free AI Counsel Blog, where we highlight useful resources and share guidance on best practices for front-line risk management and compliance professionals who are dealing with the challenges of artificial intelligence, cyber, and other emerging technologies. Be sure to click on the “subscribe now” button to ensure that you receive our latest blogs in your inbox!

– John Jenkins