Hunton Insurance Recovery Blog

Artificial intelligence is transforming how businesses operate—but with innovation comes new, complex risks. A recent lawsuit—Raine, et al. v. OpenAI, Inc., Docket No. CGC25628528 (Cal. Super. Ct. Aug 26, 2025)—spotlights this dynamic and highlights why tried-and-true insurance products are still a critical first line of defense.

On August 26, 2025, the parents of a 16-year-old boy sued OpenAI, its CEO Sam Altman, and certain employees and investors. They claim that ChatGPT contributed to their son’s suicide by encouraging suicidal conduct, providing instructions on how to commit suicide, and even offering assistance in tying the knot used by the boy in the noose that eventually took the boy’s life. According to the complaint, the boy told ChatGPT that he “intended to commit suicide.” Rather than dissuade the suicide, the complaint claims that ChatGPT offered to “help him write a suicide note,” stating “I’ll help you with it. Every word.” Based on this factual background, the lawsuit alleges design defects, inadequate warnings, and violations of California’s Unfair Competition Law. Importantly, these allegations are just that: allegations. The case is just beginning, meaning no proof or substantiation has yet been offered beyond the allegations.

Businesses decide to switch liability insurers or obtain higher policy limits for various reasons. In doing so, policyholders should exercise caution to avoid future claim denials (or even policy recission) based on so-called “prior knowledge” issues. Prior knowledge comes into play when the policyholder knew about facts, incidents, or circumstances that occurred before the policy incepted, which can lead to problems if the insurer asserts that the policyholder had “prior knowledge” of an incident before seeking new coverage, limits, or policies.

The Minnesota Court of Appeals recently handed policyholders an important win in Life Time, Inc. v. Zurich American Insurance Co., reversing a trial court ruling that had capped coverage under a communicable disease endorsement at the $1 million per occurrence limit. Relying on the express language of the communicable disease coverage at issue, the appellate court held that government shutdown orders—not the COVID-19 pandemic itself—constituted the operative “occurrences” under Life Time’s policy. By interpreting the cause of loss in this way, the court expanded Life Time’s recovery from a single $1 million limit to 29 separate limits, one for each jurisdiction that independently ordered closure of Life Time’s business locations.

Hunton receives many inquiries about litigation risk insurance. Hunton partner Latosha M. Ellis and associate Charlotte Leszinske provide insight on this topic in an article recently published in the Real Estate Finance Journal. The article explains how litigation risk insurance often works in tandem with traditional insurance, providing extra protection against uncertain legal outcomes. It describes the ins and outs of several types of litigation risk insurance products—judgment preservation insurance, adverse judgment insurance, and punitive wrap insurance—and how each of these products can target specific risks related to ongoing litigation. The authors also explain how these insurance products can be used to further other strategic goals, such as freeing up cash flow, obtaining settlement in pending cases, and reaching agreement on terms in a prospective merger or acquisition.

The article is available for review at the following link: Reducing Legal Exposure in Real Estate: Leveraging Litigation Risk Insurance

A recent decision by the Eastern District of Virginia illustrates the tricky problem of relatedness in claims-made liability insurance policies. When a claim is made that relates to an earlier claim, the second claim is covered under the same insurance policy as the original claim, even if that policy has expired. However, determining when two claims are related is not always straightforward and involves a highly fact-specific analysis. As shown in Navigators Specialty Insurance Company v. Avertest, LLC, sometimes even identical allegations, describing the same allegedly negligent business practice, may not be enough to make claims related. Instead, under typical policy language, what matters is whether the claims arise from the same or related occurrences.

While millions have been captivated by Wayfarer Studio’s production of “It Ends With Us,” a lesser-known but real-life insurance drama is unfolding off-screen. Last week, Harco National Insurance Company found itself in the spotlight when it filed a declaratory judgment action against its insureds, including, among others, Wayfarer Studios LLC, It Ends With Us Movie LLC and Justin Baldoni (jointly “Defendants”) asserting it has no obligation to defend the claims brought against Defendants by Blake Lively in Lively v. Wayfarer Studios, et al., U.S.D.C., S.D.N.Y. Case No. 1:24-cv-10049-LJL (the “Underlying Action”). 

A recent decision by the Fifth Circuit illustrates an important principle in insurance coverage disputes: The wording of insurance policies and basic grammar principles are important to coverage determinations, placing the onus on the insurers that draft insurance contracts to use clear and unambiguous language, especially in seeking to deny coverage based on exclusions. In Paloma Resources, L.L.C. v. Axis Ins. Co., No. 22-20228 (5th Cir. July 7, 2025), the insurance policy included an intellectual property exclusion, which used the phrase “actual or alleged” before listing a series of clauses. The court held that use of “the” immediately before the “misappropriation of ideas or trade secrets” clause in the exclusion meant that it was reasonable to interpret the exclusion as applying only to actual misappropriation, rather than broader actual and alleged misappropriation. Because the policyholder’s narrower reading of the exclusion based on the word “the” was reasonable, the court was required to adopt it, regardless of whether the insurer’s preferred, narrower interpretation was equally or even more reasonable.

Aon released a recent report titled “2025 Transaction Solutions Global Claims Study: Managing Deal Risk to Secure Investments and Enhance Returns.” That report described over $300 million in representation and warranties insurance claim payouts for North American clients, a record annual total. Aon also reported that the median payment size was $5.5 million, indicating significant recovery on noticed claims. Hunton partner Syed Ahmad was recently quoted in a Law360 article, commenting that the market for M&A insurance is largely driven by the underlying deal activity. He added that “[r]ecoveries at this rate can also influence perceptions and increase the demand for these products by repeat players in the marketplace.”

After four years of litigation, key limitations in the California FAIR Plan fire policy were found to be unlawful in Jay Aliff v. California FAIR Plan Association. Originally designed to be California’s insurer of last resort, the California FAIR Plan has increasingly become the default plan for those in California who do not qualify for policies with private insurers.

The decision is significant, not only because of the vast number of individuals who have come to depend on FAIR Plan policies for coverage, but also because so many of these policies have been implicated by the devastating wildfires that engulfed the Los Angeles area in January of this year, especially by those whose properties did not burn but instead were rendered uninhabitable because of smoke, soot and ash. The decision speaks directly to the plight of those policyholders by clarifying that a property insurance policy cannot redefine core property insurance concepts like “direct physical loss” or “smoke damage” in ways that unlawfully restricts coverage.

Artificial intelligence (AI) continues to reshape the way businesses operate, from human resources and operational efficiency to cybersecurity and financial reporting. It should come as no surprise, therefore, that companies are calling on AI to facilitate and enhance corporate filings and shareholder communications. Management Discussion and Analysis (MD&A) submissions in publicly-traded companies’ Securities and Exchange Commission filings are no exception. These submissions have been viewed by securities analysts as a sort of corporate DNA which, if read properly, could reveal telling traits and warning signs about future corporate performance. While it might be common knowledge that analysts are using AI to analyze MD&A submissions, less clear is whether (and which) companies are using AI to generate their MD&As.