AI Governance: A New Source of Executive Liability

Artificial intelligence, including chatbots, predictive analytics, hiring platforms, and generative AI, is transforming business operations. According to recent industry research, nearly 80% of organizations now use AI in some form, but many have yet to establish formal governance, policies, or oversight.

For boards and executive leadership, AI is no longer just an IT issue, it's a governance issue. Organizations that adopt AI without appropriate controls may face regulatory scrutiny, shareholder actions, employment claims, cybersecurity incidents, and reputational damage.

The question every board should be prepared to answer is:
"Can you demonstrate that your organization is governing AI responsibly?"

Executive Liability Risks

Directors & Officers (D&O)
Weak AI governance can lead to allegations that directors and officers failed to exercise appropriate oversight. Examples include:

• AI-generated forecasts contributing to financial losses or shareholder claims.
• Employees exposing confidential or proprietary information through public AI tools.
• AI-driven operational or quality failures resulting in recalls, contractual disputes, or financial losses.

Employment Practices Liability (EPL)
AI is rapidly changing hiring and employment decisions, creating new areas of liability. Potential claims can include:

• Discriminatory hiring or promotion decisions.
• Biased resume screening.
• AI-assisted performance evaluations leading to wrongful termination claims.
• Automated employment decisions made without meaningful human review.

Employers should be prepared to explain how AI-assisted decisions are reviewed and documented.

Michigan Regulatory Outlook
Michigan is considering legislation that would regulate certain uses of AI in the workplace, including employee notification, documented risk assessments, and bias evaluations. Proposed penalties could begin at $10,000 per violation.

Regardless of legislative timing, regulators are placing greater emphasis on transparency, governance, and accountability.

Questions Every Board Should Ask

• Where is AI being used across our organization?
• Who approves and oversees AI tools?
• Are high-risk decisions reviewed by people?
• Do we have written AI policies and employee training?
• Have we evaluated our insurance program for AI-related exposures?

Recommended Actions

• Inventory all AI tools, including employee-adopted applications.
• Implement written AI governance and acceptable-use policies.
• Require human oversight for significant business and employment decisions.
• Train employees on responsible AI use.
• Evaluate AI vendors for security and privacy risks.
• Review your D&O, EPL, Cyber, E&O, and Technology insurance policies for potential AI-related coverage gaps.

The Bottom Line
AI offers tremendous business opportunities, but only when supported by strong governance.

Organizations that establish clear policies, maintain human oversight, and document AI decision-making will be better positioned to reduce litigation, satisfy regulators, and protect stakeholder confidence.

Now is the time to review both your AI governance framework and your insurance program.

AI Governance Readiness Checklist
Ask yourself:

✓ Do we know every AI tool being used across the organization?
✓ Do we have a written AI governance policy?
✓ Are AI-assisted decisions subject to human review?
✓ Have employees received AI training?
✓ Have we reviewed our D&O, EPL, Cyber, and E&O coverage for AI-related exposures?

If you answered "No" to any of these questions, now is the time to strengthen your AI governance before it becomes a legal, regulatory, or financial issue. We can help you identify exposures, evaluate your insurance program, and develop a practical plan to strengthen protection for your organization, your leadership team, and your future.

Secure Board AI Oversight to Avoid Tomorrow's Lawsuits
Implement AI Policies Before Regulators Come Knocking
#TeamKoppinger - Advisors Who Understand Emerging Risk