AI companies face insurance coverage gaps as risks evolve

David Halbreich, an insurance recovery partner at Reed Smith, outlines how AI companies can address coverage gaps in their directors and officers (D&O) and errors and omissions (E&O) policies as the industry grows.

He highlights ‘straddle’ claims that fall between tail and go-forward policies after a merger, and warns that governance disclosures in insurance applications can become warranties that insurers use to deny claims. He advises risk managers to review applications carefully and seek limitations on misstatement consequences.

Halbreich also discusses when the claim clock starts for slow-building model degradation and how business interruption coverage applies to outages at cloud and compute vendors, recommending that AI companies establish clear internal policies for AI use and ensure compliance before renewal.