AI companies operate at the bleeding edge of innovation—and risk. From LLM-powered tools and autonomous systems to data-intensive platforms, AI companies face a web of liability exposure that traditional insurance policies weren’t built to cover. 

That’s why having the right insurance is essential. Each policy addresses a different risk, and together they create a safety net that protects your company, your team, and your runway.

For AI founders, this isn’t just a compliance checkbox, it’s a strategic decision. You’re building software that can hallucinate, train on copyrighted content, or inadvertently discriminate in high-stakes decisions. The risks are real, and so are the lawsuits.

Recommended Coverages

While every company’s needs will vary based on product and stage, most AI companies need the following core coverages:

Directors & Officers (D&O) Insurance

D&O protects your company’s leadership—founders, board members, officers—if they’re personally named in a lawsuit over decisions made on the company’s behalf. This includes investor disputes, cap table conflicts, regulatory investigations, and even claims of mismanagement.

AI example: Your board is sued for misleading investors about the performance of your LLM-based product. D&O helps cover the cost of legal defense and settlements.

Bonus: Vouch can help you find a policy that includes unique protections like IP dispute defense and cap table dispute sublimits.

Errors & Omissions (E&O) Insurance

E&O protects against claims that your product or service caused financial harm due to errors, omissions, or failures to perform as expected. For AI companies, this could mean bugs in the model, biased outputs, or hallucinations that lead to downstream losses.

AI example: Your AI-powered analytics tool makes inaccurate predictions, costing a customer millions in lost revenue. They sue you for negligence.

Tip: Make sure your E&O includes AI-specific enhancements like bias liability and hallucination coverage.

Cyber Insurance

Cyber insurance protects against data breaches, ransomware, and cyberattacks. Because AI companies handle large, sensitive datasets, and sometimes repurpose data for training, this is a high-exposure area.

AI example: A cybercriminal exploits your AI model to access customer PII, triggering legal costs, notification requirements, and regulatory fines.

Pro move: Look for a policy that covers AI-specific vectors like adversarial attacks and social engineering fraud.

General Liability Insurance

General Liability covers bodily injury, property damage, and advertising injury—classic risks most companies need to insure against, especially if you have a physical presence or host events.

AI example: You host a demo day where a guest trips on your equipment. GL helps cover their medical costs and legal expenses.

Business Property Insurance

Business Property insurance covers damage or loss of company property—like laptops, desks, or servers—from events like fire, theft, or vandalism.

AI example: Your office’s GPU servers are destroyed in a flood. Business property insurance can help replace the hardware and cover lost revenue during downtime.

Employment Practices Liability Insurance (EPLI)

EPLI protects against employee claims like discrimination, wrongful termination, and harassment. For AI companies deploying hiring tools, there’s an added layer of exposure from both internal and external risk.

Additional Coverages

Some AI companies may benefit from broader protections depending on their product and operations:

• AI Insurance: Specialized E&O with affirmative coverage for model failures, hallucinations, bias, and regulatory risk.
  
• Crime Insurance: Covers employee theft, fraud, and embezzlement—especially important for companies managing funds or sensitive financial data.
  
• Fiduciary Liability: Protects against errors in administering employee benefit plans like 401(k)s.
  
• Hired & Non-Owned Auto (HNOA): Covers employees using personal or rented vehicles for business.

Learn more about how much insurance costs for AI companies.

Industry-specific Coverages

Because AI is a relatively new technology to build a business around, existing insurance coverages don’t always provide the most comprehensive protection.

Some use cases introduce unique risk that may warrant even more targeted coverage:

Bias and Discrimination Coverage

AI models can unintentionally produce discriminatory outputs—triggering lawsuits under civil rights laws. This is critical for AI companies operating in HR tech, lending, healthcare, or real estate.

Example: Your HR SaaS platform is accused of racial bias in its candidate scoring model. Bias coverage can help pay for legal defense and settlements.

Intellectual Property (IP) Claims Coverage

If your model is trained on third-party data (even if sourced by an LLM provider), you could be pulled into a copyright or trademark dispute.

Example: Your AI-generated educational content mimics copyrighted material, and the rights holder sues. IP coverage helps cover defense costs.

Regulatory Investigation Coverage

As frameworks like the EU AI Act and state-level bias laws emerge, coverage for government inquiries is becoming essential.

Example: The FTC investigates your startup over misleading claims about your AI’s transparency. This coverage pays for legal representation and audit support.

Exclusions

Exclusions are clauses in your policy that outline what isn’t covered. For example:

• Known or prior incidents (i.e., lawsuits already underway before coverage starts)
  
• Intentional fraud or misconduct
  
• Uninsurable fines or penalties (depends on jurisdiction)
  
• Some IP disputes (e.g., patent claims under standard E&O)
  

Always review exclusions carefully and consider endorsements to fill gaps.

Importance of Scaling Coverage

As your AI company grows, from prototype to product-market fit to enterprise sales, your risks multiply. More data, more users, bigger contracts, and investor scrutiny all demand higher limits and more nuanced coverage.

You’ll also run into contractual requirements from:

• Enterprise customers (requiring E&O, Cyber)
  
• Landlords (requiring General Liability)
  
• Board members and investors (requiring D&O)
  

Regularly review your insurance program to make sure it evolves with your business goals, revenue, and product risk.

Learn more about how much insurance AI companies need.

Insurance for AI companies isn’t one-size-fits-all. The right mix of policies—E&O, Cyber, D&O, and beyond—protects your team, your IP, your customers, and your future. As AI companies face mounting litigation, data risk, and regulatory scrutiny, having comprehensive and scalable coverage is a critical part of building responsibly.

This content is for informational purposes only and does not constitute an offer of insurance. Coverage is subject to underwriting, availability, and the terms, conditions, and exclusions of the applicable policy. Not all products are available in all jurisdictions. Please contact Vouch for more information.

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