New Generative AI Insurance Exclusion: What the Construction Industry Needs to Know

Businesses integrating generative Artificial Intelligence (“AI”) into their operations should take note of a significant shift in the insurance landscape. The Insurance Services Office (“ISO”) has a new optional endorsement for commercial general liability (“CGL”) policies entitled Generative AI (CG 40 47 01 26) (the “Generative AI Exclusion”). This exclusion presents language for claims arising from generative AI outputs.

The Generative AI Exclusion defines the term “generative artificial intelligence” as “a machine-based learning system or model that is trained on data with the ability to create content or responses, including but not limited to text, images, audio, video, or code.”

The Generative AI Exclusion applies to both Coverage A (bodily injury and property damage) and Coverage B (personal and advertising injury). The Generative AI Exclusion may be broad enough to successfully bar coverage for claims involving any aspect of AI, generative AI (“GenAI”), or large language models (“LLMs”).

In practice, this means insurers could deny claims involving physical harm traceable to AI errors. In the construction industry, where physical risks are high, a flawed AI-generated structural calculation, a hallucinated building specification, or an erroneous project schedule could lead to design defects, construction delays, accidents, and resulting bodily injury and/or property damage claims. Where such harm is traceable to AI, the exclusion could operate to bar coverage entirely.

Given that ISO forms underpin approximately 82% of U.S. property and casualty insurance policies, the Generative AI Exclusion is likely to be adopted quickly by carriers, particularly at the renewal period. As a result, small and mid-sized construction businesses may face heightened exposure to third-party claims.

In light of these developments, businesses should review their existing insurance programs with their agent/broker to assess potential coverage gaps. Additionally, engaging counsel to evaluate policy language and explore available solutions will be critical as insurers continue to refine their approach to AI-related risks.