Summary: As businesses rely more on AI for everyday decisions, mistakes can raise difficult questions about who should be held responsible. Liability may involve the developer, technology provider, business, or employee, depending on how the system was created, deployed, and used. Clear oversight, careful AI practices, and the right insurance coverage can help businesses manage these risks as AI becomes part of their operations.
Key Takeaways:
- AI mistakes can create legal and financial risks for businesses.
- Liability may extend to developers, vendors, businesses, or employees.
- No single insurance policy automatically covers every AI-related loss.
- Human review remains important for decisions with significant consequences.
- Businesses must review AI practices, vendor contracts, and insurance coverage as AI use expands.
AI is no longer limited to experimental projects. In McKinsey’s 2026 global survey, nearly nine in ten respondents reported regular AI use in at least one business function. Companies now use AI to analyze information, communicate with customers, detect fraud, assess risk, and automate routine tasks. While these tools can improve efficiency, they also raise a difficult question when something goes wrong: who is liable for AI mistakes?
If an AI system produces an incorrect recommendation that leads to financial harm, the software itself is unlikely to face legal action. Responsibility may potentially involve the company that deployed it, the technology provider that developed it, or the employee who relied on its output.
For businesses, AI liability is becoming an insurance and risk-management question as much as a technology question.
In this blog, we will explore AI responsibility, insurance coverage, and how businesses can manage AI-related risks.
What Is the AI Responsibility Gap?
The AI responsibility gap describes the uncertainty that can arise when several parties contribute to an AI-driven decision.
A developer may create the system. A vendor may provide the technology. A business may configure and deploy it. An employee may review the result and act on it. If the result is wrong, determining who bears responsibility depends on what happened and who controlled each part of the process.
AI does not have legal responsibility or accountability in the same way a person or business does. That means companies need to think carefully about where accountability sits before an AI system is put to work.
The scale of AI use also shows why this matters. A July 2025 report from the U.S. Government Accountability Office found that reported AI use cases across 11 selected federal agencies nearly doubled, from 571 in 2023 to 1,110 in 2024.
As AI use expands, so does the need to identify who is responsible when an output causes harm.
Who Could Be Liable When an AI System Fails?
AI accountability can involve several parties, depending on the facts surrounding the error. Let’s break it down:
AI Developers and Technology Providers
Developers are responsible for building and testing their systems. Problems with model design, training data, security, documentation, or representations about what a system can do may create legal exposure in some situations.
That does not mean a technology provider is automatically responsible for every incorrect AI output. The circumstances matter, including what the provider promised, how the system was designed, and how the customer was expected to use it.
Businesses That Use AI
A company that purchases an AI tool still has responsibilities after deployment. It may need to decide where the technology can be used, who can access it, how outputs are reviewed, and what happens when the system produces an unexpected result.
Consider an insurance company using an automated system to review claims. If the system incorrectly flags legitimate claims and employees simply accept its recommendations without review, the business may face questions about its processes and oversight.
Employees and Other Users
People using AI can also contribute to a problem. An employee who accepts an AI-generated answer without checking it, uses confidential information in an unapproved tool, or ignores a warning can create additional risk for the organization.
Human review matters even more when an AI output affects someone’s finances, insurance, healthcare, employment, or other significant interests.
How AI Failures Can Become Insurance Claims
An AI system failure does not automatically create an insurance claim. However, an AI-related mistake can lead to the same types of financial disputes that businesses have dealt with for years.
For example, imagine a business uses an AI system to analyze customer information. The system produces an incorrect result, an employee relies on it, and a customer suffers a financial loss. The customer could make a claim against the business.
The type of loss and the language in the policy would determine whether insurance responds.
Potentially relevant coverage can include:
- General liability insurance for certain third-party claims involving covered bodily injury or property damage
- Professional liability or errors and omissions insurance for certain claims involving professional services, advice, or mistakes
- Cyber insurance for covered data breaches, cyberattacks, and related losses
- Technology-related coverage that may address specific exposures created by digital products or services
Coverage details vary based on the policy terms, type of business, and circumstances of the claim. An AI-related loss should not be assumed to fall under one particular policy simply because technology was involved.
Does Insurance Cover AI Mistakes?
Sometimes, but there is no single insurance policy that automatically covers every type of AI error.
Coverage depends on what happened, who suffered the loss, what the business was doing, and the terms of the policy. Exclusions, limits, deductibles, contractual obligations, and other provisions can also affect a claim.
That makes an insurance review worthwhile for businesses that are adding AI to their operations.
Questions to Ask Your Insurance Professional
Before relying heavily on AI, consider asking:
- Does my current coverage address professional errors involving AI-assisted work?
- Could my cyber policy respond to a covered AI-related data or security event?
- Are there exclusions that could affect an AI-related claim?
- Are my policy limits appropriate for the risks my business faces?
- Do contracts with AI vendors create additional insurance requirements?
A licensed insurance professional can review the policies you already carry and identify areas that may deserve closer attention.
How Businesses Can Reduce AI Liability Risk
Businesses do not have to avoid AI to reduce their exposure. They can start by establishing clear rules for how the technology is used, such as:
- Assign responsibility: Every AI system should have someone responsible for its use and oversight.
- Review important outputs: Employees should verify AI-generated information before using it for high-impact decisions.
- Document AI use: Keep records of what systems are being used, what they are designed to do, and who reviews their outputs.
- Protect customer information: Sensitive information should only be entered into AI tools that have been approved for that type of data.
- Review vendor agreements: Contracts can determine who is responsible for certain losses, security requirements, and other obligations.
- Review insurance coverage: As AI changes how a business operates, its insurance needs may change as well.
Why Human Oversight Still Matters
AI can process information quickly and provide useful recommendations, but it does not take responsibility for the decision that follows.
Think of AI as a tool that assists a person. The system can identify a pattern, summarize information, or suggest an answer. A person still needs to decide whether that output is accurate enough to act on.
That distinction matters for AI accountability. When businesses keep people involved in meaningful review, they have a better opportunity to catch errors before those errors become costly claims.
Final Thoughts
The question of who is liable for AI mistakes will continue to evolve as businesses use AI across more of their operations. For now, companies can focus on what they can control: how AI is used, who reviews its outputs, what risks it creates, and how those risks are addressed.
Responsible AI is about more than using the right technology. It also means having clear oversight and considering what could happen when an AI-driven decision goes wrong. That includes reviewing whether your business insurance aligns with the risks created by these new tools.
At Terri Yurek Insurance, we help businesses review their coverage as their operations evolve, with thoughtful guidance and human oversight.
Contact us to discuss your business insurance needs.
Frequently Asked Questions (FAQs)
1. Who is liable when an AI system makes a mistake?
- Responsibility depends on the specific situation. The developer, the company that put the system into use, the employee who relied on it, or more than one party may potentially be held accountable.
2. Can an AI system be sued for making a mistake?
- AI itself generally does not have legal personhood. Claims are typically directed at the people or organizations responsible for developing, deploying, or using the technology.
3. Does general liability insurance cover AI mistakes?
- Not automatically. Coverage depends on the type of claim and the specific policy language. Other coverage, such as professional liability or cyber insurance, may be relevant depending on the situation.
4. What insurance covers AI-related business risks?
- There is no single policy that covers every AI risk. Professional liability, cyber, general liability, and technology-related coverage may each address different exposures.
5. Should businesses review their insurance when they start using AI?
- Yes. Adding AI can change how a business handles customer information, professional services, and operational decisions. A coverage review can help identify potential gaps as those risks change.
