What Insurance Covers AI Errors and Hallucinations?

There is no single answer based only on the fact that an output came from an AI system. If a customer alleges that an AI-enabled professional service gave inaccurate information, produced a faulty result, or failed to meet a contracted function and caused financial loss, professional or technology E&O is a policy to examine. Texas DOI describes professional liability as covering claims arising from professional services, including a client’s financial loss from a mistake. That general description does not establish that every AI output qualifies.

The same incident can raise different insurance questions. A hallucinated statement published about someone may raise media or defamation issues; unauthorized exposure of personal data may involve cyber privacy liability; bodily injury or property damage can trigger different lines and exclusions. A policy may exclude intentional conduct, known defects, contractual performance guarantees, or certain uses of unapproved technology. Coverage turns on the insured’s services, the claim, and the wording in force.

Describe the AI system’s role, human review, customer use, data sources, and the services you sell when seeking quotes. Check definitions of professional services and products, AI-related endorsements or exclusions, third-party IP and privacy grants, contractual indemnities, retroactive date, consent terms, and whether defense expenses erode limits. Ask the insurer to confirm the relevant use case in writing.