Artificial intelligence is transforming the way businesses operate. From hiring tools and customer service chatbots to forecasting software and workflow automation, AI can improve efficiency, reduce administrative work, and help employees focus on higher-value tasks.
More advanced agentic AI tools are even capable of making autonomous decisions, completing tasks, analyzing data, and interacting with other systems with minimal human involvement.
But as AI becomes more integrated into day-to-day operations, it also introduces new business risks. If an AI system makes a mistake that harms a customer, employee, or third party, your business—not the technology—may be held responsible.
AI Can Make Mistakes
AI can analyze enormous amounts of information in seconds, but it isn’t infallible. Like any technology, it has limitations and can produce inaccurate or misleading results.
Common AI errors include:
- Misinterpreting prompts or incomplete information
- Relying on inaccurate, outdated, or biased data
- Making decisions without sufficient context
- Producing incorrect or fabricated responses (“hallucinations”)
- Becoming overly agreeable rather than identifying errors
- Following instructions it shouldn’t when improperly prompted
When these mistakes influence hiring decisions, customer interactions, financial recommendations, or operational processes, the consequences can include:
- Financial losses
- Employment-related claims
- Regulatory investigations or fines
- Reputational damage
- Customer disputes
As AI adoption grows, courts and regulators are making it increasingly clear that businesses remain responsible for how these tools are used.
Real-World Examples
AI Hiring Decisions
Employers are increasingly using AI to screen job applicants. In one ongoing legal case, an applicant alleged that an AI-powered hiring platform unfairly rejected qualified candidates based on protected characteristics such as age, race, and disability.
While the case continues, regulators have argued that employers cannot avoid liability simply because an AI system participated in the hiring process. If AI influences employment decisions, employers remain responsible for ensuring those decisions comply with employment laws.
The lesson: AI may assist your hiring process, but accountability still rests with your organization.
AI Chatbots and Customer Advice
AI chatbots have become common customer service tools, but inaccurate information can quickly create legal issues.
One well-publicized case involved an airline chatbot that incorrectly advised a customer about refund eligibility. After relying on the chatbot’s information, the customer was denied reimbursement and ultimately prevailed in court. The company—not the chatbot—was held responsible for the misinformation.
The lesson: If AI communicates directly with customers, your business may still be liable for inaccurate guidance.
Who Is Responsible?
AI itself cannot be held legally liable.
Responsibility generally falls on:
- The business using the AI solution
- The software vendor (in certain situations)
- Or, in some cases, both
As AI regulations continue to evolve, businesses are facing increasing scrutiny around topics including:
- Employment decisions
- Data privacy
- Intellectual property
- Consumer protection
- Automated decision-making
The legal landscape is still developing, but one principle is becoming increasingly consistent: businesses remain accountable for the outcomes produced by the AI tools they deploy.
Why AI Governance Matters
AI can evaluate millions of data points almost instantly, making it incredibly valuable for fraud detection, forecasting, customer service, and operational efficiency.
However, AI is only as reliable as the data and instructions it receives.
If an AI system relies on inaccurate information or biased data, it can generate flawed recommendations that may be repeated and amplified over time. Poor outputs can affect business decisions, customer experiences, and regulatory compliance.
That’s why successful AI implementation requires more than simply adopting new technology—it requires thoughtful governance, oversight, and risk management.
Managing AI Risk
AI doesn’t have to create unnecessary exposure. Businesses can reduce risk by putting practical safeguards in place.
Know Where AI Is Being Used
Many business applications now include AI features, even if they aren’t immediately obvious.
Take inventory of the platforms your organization uses and understand:
- Which tools incorporate AI
- What data they access
- How information is stored
- Whether sensitive information is being entered into AI prompts
Establish internal policies that address acceptable AI use, cybersecurity, and data privacy.
Keep People Involved
AI should support decision-making—not replace human judgment.
For high-impact activities such as hiring, contracts, financial recommendations, or customer communications, build review processes that include human oversight before decisions are finalized.
Document workflows and maintain records showing when AI-generated content has been reviewed or edited by employees.
Evaluate AI Vendors Carefully
Before implementing AI solutions, understand what your technology providers are—and are not—responsible for.
Vendor agreements may limit liability, leaving your organization responsible if an AI tool causes financial harm, provides inaccurate information, or mishandles customer data.
Review contracts carefully and understand where responsibility ultimately falls.
Does Insurance Cover AI-Related Claims?
Many insurance policies were developed before today’s widespread use of artificial intelligence. As a result, AI-related claims may not always fit neatly within existing coverage.
Depending on the circumstances, coverage could potentially involve:
- Professional Liability (Errors & Omissions)
- Cyber Liability (when AI-related issues stem from a cyber incident)
- Employment Practices Liability (EPLI) for certain employment-related claims
However, policy language varies significantly. Some policies contain technology-related exclusions, while others may not specifically address AI exposures at all.
Reviewing your insurance program before an issue arises can help identify potential coverage gaps.
Prepare Before Problems Arise
Artificial intelligence offers tremendous opportunities to improve productivity, streamline operations, and support business growth. But like any business technology, it should be implemented with appropriate safeguards.
At Bender Insurance Solutions, we help businesses evaluate emerging risks—including those associated with AI—and understand how their insurance program supports their overall risk management strategy.
If your organization is using AI today—or planning to expand its use—now is a good time to review your risk exposures, internal controls, and insurance coverage. A proactive conversation today can help position your business for greater confidence as AI continues to evolve.
This article is intended for informational purposes only and should not be interpreted as insurance, legal, or risk management advice.
