Corporate leaders are scrambling to show they are prepared for the earthquake that artificial intelligence will bring to many industries, but how they communicate that preparedness could hold directors and executives accountable.
Management is eager to share how it is responding to AI’s huge opportunities and risks, but shareholders’ lawyers are keeping an eye on any disclosures, ready to sue if the stock price falls. If the AI ”bubble” bursts, stock prices will likely plummet and the number of lawsuits will likely skyrocket.
D&O experts say directors and executives can cause problems not only by overhyping the opportunities of AI, but also by downplaying the risks.
“Developing AI too quickly can run the risk of weak controls and exaggerated claims,” said John Orr, D&O liability product leader at San Francisco-based Willis Towers Watson. “Otherwise, you run the risk of moving too slowly and falling behind.”
The number of AI-related federal shareholder class actions more than doubled between 2021 and 2015, with several more being filed this year. Most leaders claim to be overhyping the role of AI in their products and operations, known as “AI washing.” Recently, some plaintiffs have argued that companies are underestimating AI-related risks, including the challenges of implementing AI.
Although AI is a new catalyst for class action lawsuits, “the litigation pattern is familiar” compared to previous catalysts such as environmental, social and governance issues, cybersecurity and the MeToo movement, Orr said. He said the layoff rate and settlement amounts are similar to the average for all shareholder lawsuits.
However, little is known about how judges view AI-related claims on the merits. “We’re just scratching the surface,” said Michael Levine, a Washington-based partner at Hunton Andrews Kurth.
Shareholder lawyers aren’t the only ones scrutinizing executives’ AI-related statements. The U.S. Securities and Exchange Commission has filed a lawsuit over false and misleading statements about the use of AI, naming AI as the focus of its fiscal year 2026 review and saying it will “examine the accuracy of registrants’ representations about their AI capabilities.”
Amid all the hype around AI cleaning suits, D&O underwriters are taking a closer look at how company leaders are managing AI risks during renewals.
“We’re certainly seeing D&O insurers working harder in their underwriting meetings to understand what risk management controls are in place within an AI governance framework,” said Paul Figliozzi, who oversees management liability at Howden US in New York. “They want to ensure that boards document high-impact AI decisions at the board level.”
Orr said underwriters are still asking most general questions about AI. The exceptions are technology companies and those with AI embedded at the core of their products and services, he said, which are now asking “micro questions about how AI will drive revenue, how it might impact cost structures, the timeline for integration, and how resilient the business is to AI.”
As insurers confront AI risks, some have announced AI exclusions or begun offering aggressive coverage. In 2025, several insurance companies are reportedly looking to include “absolute” exclusions for AI in various liability policies. However, D&O insurers generally do not exclude claims based on specific triggers such as AI or product recalls, Orr said.
Hunton Andrews’ Levine said assessing the risks of AI is difficult because the technology is spread across enterprise units and departments. Risk assessments need to be comprehensive, and AI usage across the company needs to be managed and monitored by an executive or team reporting to the board.
If a company wants its disclosures to be covered by D&O insurance, it must be careful about who makes the disclosures. Depending on the company, these may be created by the chief technology officer, chief artificial intelligence officer, or other leaders not covered by the company’s D&O policy, notes Jeffrey Fehling, a Boston-based partner at Hunton Andrews.
A further concern is when disclosures are made by the AI itself, which could result in “hallucinations” or be subject to exclusions under AI-related policies. Levine noted that Amsterdam-based technology company IceCat has appointed a bot called “Elsa Frozen Brain” as a “non-statutory director” and chief AI officer of the publicly traded company.
“Whether you’re filing a brief, a disclosure statement, or a regulatory filing, don’t be foolish and rely blindly on AI,” Levine said.
WTW’s Orr said that while the technology is new, the basic principles of oversight and governance remain largely unchanged.
“At the end of the day, we don’t need to reinvent risk management,” he says. “It’s about applying customary governance disciplines to technology that has become part of everyday business. It’s about extending the discipline to this particular subject.”
