The rapid ascent of AI to the pinnacle of corporate ranks is fascinating, but don’t get caught gazing at the shiny new director; its guidance and decision-making pose a whole new and complex set of risks that must be considered, especially when it comes to insuring against corporate management liability.

Artificial intelligence is reshaping how businesses operate, including how business leaders make important decisions. But AI is not just enhancing operational efficiency, it is now literally running the company. The rapid evolution of AI has quietly progressed to where AI-powered bots are now assuming board-level and C-suite level positions, with one such bot holding the title of Chief AI Officer (CAIO) of a publicly traded company. This rapid ascent of AI to the pinnacle of corporate ranks is fascinating, but don’t get caught gazing at the shiny new director; its guidance and decision-making pose a whole new and complex set of risks that must be considered, especially when it comes to insuring against corporate management liability.

AI-Powered Board Members

Last month, the CEO of a leading global tech manufacturing company said she would be open to the idea of having an AI-bot board member. While delegating board-level decision making to a bot may seem forward-thinking, it is not new. More than a decade ago, a Hong Kong-based venture capital firm formally appointed an algorithm to its board of directors, giving it voting power on the firm’s investment decisions. More recently in 2023, a tech investor and global content syndicator installed an AI bot as a non-statutory board member with the title of CAIO. Her name? Elsa Frozenbrain.

While global business leaders are grappling with AI innovation, insurance companies have focused on how AI affects risk profiles. Those emerging risks have led to the introduction of AI-specific policy exclusions. The impact of AI on directors and officers liability insurance is varied and further complicated by the technology’s constant evolution and new applications. There is no doubt that company leaders now rely on AI as a tool to help make their own decisions, but what are the insurance implications and what if AI does more than that?

Three Coverage Problems for AI-Powered Boards

Below are some important issues to keep front of mind when considering AI usage in the boardroom:

1. AI Directors and the Definition of Insured Person. D&O policies first and foremost provide protection to individual directors and officers in claims challenging their decisions in managing the company. Definitions vary between policies, but “insured persons” typically are defined as “natural persons” acting in their capacity as a duly elected or appointed officer or director of the company. Natural persons refers to living human beings, which would not include artificial entities like generative AI. Whether D&O insurance would respond to claims against AI-powered board members under those traditional definitions is very much an open question. But losing coverage has real consequences because “mixed” claims involving both covered and uncovered claims against co-defendants—like fiduciary violations against AI and human directors—can lead to coverage gaps or allocation disputes that dilute the protections that otherwise may be available to non-AI directors. 
2. Beware of Broad AI Exclusions. Insurers are introducing new policy exclusions focused on AI that may eliminate D&O coverage entirely for claims relating to a company’s use of AI. One insurance carrier, for example, has introduced an “Absolute” AI exclusion in several of its specialty lines products, including for D&O coverage. The exclusion broadly bars coverage for “any actual or alleged use, deployment, or development of Artificial Intelligence.” Other insurers have introduced AI exclusions barring coverage for any wrongful act “based upon, arising out of, or in any way involving” use of “generative artificial intelligence” by the insured. While narrower, this exclusion would still eliminate coverage stemming from a company’s use of an AI-powered board member. Given the breadth of these exclusions, policyholders should anticipate it could be applied to a host of D&O claims connected to AI. 
3. Mind the Minders: Coverage for CAIOs. Many companies are elevating AI to the boardroom in another way by installing CAIOs to implement AI strategies, manage risk, and coordinate with other leadership. One recent survey reported that more than 25percent of global enterprises now have a CAIO, which is up from just 11 percent in 2023. Presumably, CAIOs would be front and center in overseeing AI-powered directors—but would claims against CAIOs themselves be covered? Most D&O policies cover duly appointed or elected officers. If CAIOs are not appointed or elected by the board and instead report to other C-level positions (like the CTO), there may be gaps in coverage. The lack of consistency between state law, indemnification agreements, and corporate governance documents in whether CAIOs are officers can lead to disputes in the event of a claim when seeking indemnification or insurance coverage. 
4. Other AI Applications and Attendant Board Risks. AI implications are not limited to directors and officers. Many companies are now using AI to analyze Management Discussion and Analysis (MD&A) submissions. But using AI to generate MD&As can lead to increased risk of securities claims if companies do not adequately prepare to identify and mitigate the risk of inaccurate disclosures. One of the known risks of using AI is the technology’s tendency to hallucinate, generating seemingly plausible but ultimately false or misleading outputs. 

Companies utilizing AI in MD&A submissions need to be aware of the potential implications of AI exclusions in their D&O policies. Depending on the policy language used, even a seemingly narrow AI exclusion could bar coverage for traditional D&O exposures like securities claims if the claim is predicated on information supplied or refined with AI. Similarly, broader exclusions might impact claims where even the data considered in the MD&A is the product of AI use in corporate operations. 

Conclusion

AI-powered boards present emerging risks that will continue to evolve over time alongside the technology. Companies and their officers and directors should carefully review their D&O policy terms to identify AI-related risks and whether coverage will be available for claims arising from use and alleged misuse of the technology.

Reprinted with permission from the November 6, 2025 issue of Corporate Counsel. © 2025 ALM Media Properties, LLC. Further duplication without permission is prohibited.  All rights reserved.