January 23, 2025 -

Insurance Exposures and Considerations for Law Firms Using AI

As artificial intelligence (AI) continues to evolve rapidly, its integration into the legal profession is becoming more commonplace. While AI offers significant benefits, it also introduces new considerations for law firms. “As we’re deeply invested in several insurance programs tailored to lawyers, we’re hearing from carriers and clients alike concerns about AI claims exposures and associated legal or reputational costs,” stated Michele McCrohan of Synergy.

Law firms who specialize in Intellectual Property find themselves at the forefront of the AI frontier, navigating this new landscape protecting client IP while employing it into their practice operations. “With the application of this advanced, time-saving technology, IP legal firms may be additionally challenged to keep up with governance and unintended pitfalls,” added Jeff Roth of Jamison IP.

AI has been present in the legal field in some fashion for nearly a decade, primarily assisting attorneys and staff with data parsing, document querying, and standardizing tasks. However, its popularity has surged recently, leading more firms to embrace AI for its time-saving benefits and efficiency in handling repetitive research and writing tasks. This shift may necessitate changes in billing practices, potentially moving towards fee-based models due to the significant reduction in time required for certain tasks.

Access to online AI resources is far easier and more user-friendly today for a variety of legal tasks within and outside of a firm’s information technology team oversight. This can lead to potential gaps in checks and balances on employee usage, known as ‘shadow IT.’  “Although there is much to be excited about with AI, if not properly managed, the information entrusted or applied to a firm’s practice could compromise integrity of opinions, client confidentiality, or result in outright malpractice with costly financial and reputational consequences,” shared McCrohan.

Insurance policies vary widely so it’s a good time for agents to carefully review their insureds terms and conditions with a qualified broker who specializes in diverse legal practices including Intellectual Property firms. Some areas of potential insurance claims from the use of AI may arise from:

1. Data Privacy and Security: The use of AI can pose significant data privacy and security concerns. Law firms must ensure that all client information remains confidential and that the AI sources they use are thoroughly vetted. Misuse could result in significant cyber liability and errors and omissions exposures if not tailored to the unique nature of the firms’ operations.

2. Disclosure to Clients: Firms should disclose their use of AI to clients for transparency and to avoid future misunderstanding. This will further allow management to establish clear guidelines for AI usage within the firm to prevent unauthorized or inappropriate use by associates. Comprehensive directors and officers coverage suited to attorneys is additionally needed for practice leaders to be fully protected from personal financial loss when engaging in firm activities.

3. Bias and Accuracy: AI systems can exhibit biases and inaccuracies. Reliance on AI without context and validation can affect legal strategies, cause selection bias, and misconstrue data analytics. Ensuring that the information provided by AI is current, accurate, and free from bias is essential. Firms must double-check and verify AI-generated data to avoid presenting false or misleading information potentially resulting in malpractice. 

4. Training and Development: The reliance on AI may impact the development of junior associates and challenge all team members in how best to apply it in a compliant manner. Those firms with established training in AI practices for all team members not only furthers careers and client satisfaction, it is a tangible example of risk mitigation to let carriers know the firm is a good account to underwrite and may help you secure more favorable rates as greater attention is paid to AI governance.

“Many large and leading law firms, particularly those specializing in intellectual property (IP) law, are establishing dedicated AI practice groups to address the proper application of the technology,” stated Roth. These AI groups focus on areas such as copyright, trademark, and patents, reflecting the growing importance of AI expertise in the legal field and can additionally serve the needs of in-house governance. Legal firms with AI expertise will be sought by clients in increasing numbers to help guide their evolving business practices.

Insurance carriers are beginning to look more carefully at these new AI exposures, although the implementation of specific guidelines and policies are still in its early stages. Underwriters are discussing the necessary questions and controls to evaluate the use of AI in law firms and businesses, similar to the early days of cyber insurance. These considerations may have an impact on insurance rates and scope of coverages available in the future to help best protect law firms at the forefront of the industry and those that follow.

As AI technologies like ChatGPT, Gemini, and Copilot are used by law firms of all kinds and sizes, the need for industry-specific risk management knowledge and loss control practices will be increasingly important. “A well-versed insurance partner can identify and inform proper coverages to best address the dynamic risks lawyers face,” stated McCrohan. “Law firms who successfully navigate the complexities of integrating AI into their general and IP practices—while protecting against the associated risks and exposures—will be well-positioned for growth,” added Roth.