AI Lawsuits Drive D&O Insurance Shifts as Regulators Target Misleading Claims

As artificial intelligence becomes central to business models across sectors, companies are increasingly facing legal, regulatory, and reputational challenges—many of which now fall squarely into the domain of directors and officers (D&O) insurance. This article explores how shareholder litigation, AI-washing accusations, and federal investigations are redefining risk exposure for D&O underwriters and insureds alike.

Claims adjusters should take particular note of the rise in securities class actions tied to alleged misrepresentation of AI capabilities. Over 50 cases have been filed since 2020, involving high-profile companies like Presto Automation, Innodata, and Evolv Technologies. Many hinge on inflated valuations driven by claims of AI innovation that later proved misleading or unsubstantiated. These lawsuits often trigger D&O policy coverage for defense costs, if not settlements—adding a layer of volatility to what was already a high-stakes line of insurance.

The story underscores a pattern of ‘clash exposure,’ where multiple policies—such as D&O, E&O, and cyber—could be implicated by a single AI-related event. The precedent of the Colossus auto claims software case, which led to over $1 billion in settlements, highlights how systemic use of flawed or opaque AI tools can lead to widespread and correlated claims.

For claims professionals, the implications are twofold: anticipate higher scrutiny in underwriting and broader exposure in litigation. Adjusters may increasingly need to parse complex disclosures, evaluate the actual use of AI in insured operations, and navigate emerging regulations at the state and federal levels. AI is not just a technological issue—it’s now a material underwriting and claims risk across lines.