Caveat...your business insurance policy may not cover Shadow AI (SAI) claims
Updated: May 6
Read and understand your current insurance policy...your AI business operations may not be covered.
In mid-2026, the insurance industry is wrestling with the challenges of how to deal with claims arising out of the unauthorized use of AI tools. Underwriters are determining if policy exclusions can safeguard their carriers from SAI claims.
"AI Security Riders" are being included in policies. Additionally, insurance underwriters will require audits and probing application or renewal documentation to understand what your company is doing about SAI exposures.
There are different types of potential claims.
First party claims cover losses such as unauthorized confidential data placed into a public large language model, ransomware and extortion costs, and other reputation damages. These are just some of the first party claims which a carrier may cover.
Third party claims arise against employers when liability claims are made against businesses and their covered insureds when lawsuits are made for privacy violations involving confidential data, defamation, copyright and trademark infringement, false advertising, damage from hallucinations generated by AI that harm others, breach of contractual confidentiality clauses and provisions involving the security of trade secrets. There are other potential claims in this realm of insurance coverage.
A key strategy is to make sure you completely read your policy...all pages, all conditions, all exclusions. Carefully fill out insurance applications. Discuss your operational and policy needs with a trained and experienced insurance expert, such as brokers, agents and policy underwriters.
Battling SAI is a proactive strategy...consider insurance issues each year, and throughout your policy term.
To learn more about insurance and Shadow AI governance issues, please register for one of our live webinars. Click here.
This post is not intended to give legal advice. Readers should contact a qualified attorney when seeking legal advice on this topic.
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