Artificial intelligence (AI) is en vogue. As it rapidly reshapes industries, companies are racing to integrate and market AI–driven solutions and products. But how much is too much? Some companies are finding out the hard way.
The legal risks associated with AI, especially those facing corporate leadership, are growing as quickly as the technology itself. As we explained in a recent post, directors and officers risk personal liability, both for disclosing and failing to disclose how their businesses are using AI. Two recent securities class action lawsuits illustrate the risks associated with AI–related misrepresentations, underscoring the need for management to have a clear and accurate understanding of how the business is using AI and the importance of ensuring adequate insurance coverage for AI-related liabilities.
AI Washing: A Growing Legal Risk
Built on the same premise as “greenwashing,” AI washing is on the rise. In its simplest terms, AI washing refers to the practice of exaggerating or misrepresenting the role AI plays in a company’s products or services. Just last week, two more securities lawsuits were filed against corporate executives based on alleged misstatements about how their companies were using AI technologies. These latest lawsuits, much like the Innodata and Telus lawsuits we previously wrote about, serve as early warnings for companies navigating AI–related disclosure issues.
Cesar Nunez v. Skyworks Solutions, Inc.
On March 4, 2025, a plaintiff shareholder filed a putative securities class action lawsuit against semiconductor products manufacturer Skyworks Solutions and certain of its directors and officers in the US District Court for the Central District of California. See Cesar Nunez v. Skyworks Solutions, Inc. et al. Docket No. 8:25–cv–00411 (C.D. Cal. Mar. 4, 2025).
Among other things, the lawsuit alleges that Skyworks misrepresented its position and ability to capitalize on AI in the smartphone upgrade cycle, leading investors to purchase the company’s securities at “artificially inflated prices.”
Quiero v. AppLovin Corp.
A similar lawsuit was filed the next day against mobile technology company AppLovin and certain of its executives. See Quiero v. AppLovin Corp. et al. Docket No. 4:25-cv-02294 (N.D. Cal. Mar. 5, 2025).
The Applovin complaint alleges, among other things, that AppLovin misled investors by misleadingly touting its use of “cutting–edge AI technologies” “to more efficiently match advertisements to mobile games, in addition to expanding into web–based marketing and e–commerce.” According to the complaint, these misleading statements coincided with the reporting of “impressive financial results, outlooks, and guidance to investors, all while using dishonest advertising practices.”
Risk Mitigation and the Role of D&O Insurance
Our recent posts have shown how AI can implicate coverage under all lines of commercial insurance. The Skyworks and AppLovin lawsuits underscore the specific importance of comprehensive D&O liability insurance as part of any corporate risk management solution.
As we discussed in a previous post, companies may wish to assess their D&O programs from multiple angles to maximize protection against AI–washing lawsuits. Key considerations include:
- Policy Review: Ensuring that AI-related losses are covered and not excluded under exclusions like cyber or technology exclusions.
- Regulatory Coverage: Confirming that policies provide coverage not only for shareholder claims but also regulator claims and government investigations.
- Coordinating Coverages: Evaluating liability coverages, especially D&O and cyber insurance, holistically to avoid or eliminate gaps in coverage.
- AI-Specific Policies: Considering the purchase of AI–focused endorsements or standalone policies for additional protection.
- Executive Protection: Verifying adequate coverage and limits, including “Side A” only or difference-in-condition coverage, to protect individual officers and directors, particularly if corporate indemnification is unavailable.
- New “Chief AI Officer” Positions: Chief information security officers (CISOs) remain critical in monitoring cyber–related risks but are not the only emerging positions to fit into existing insurance programs. Although not a traditional C–suite position, more and more companies are creating “chief AI officer” positions to manage the multi–faceted and evolving use of AI technologies. Ensuring that these positions are included within the scope of D&O and management liability coverage is essential to affording protection against AI–
In sum, a proactive approach—especially when placing or renewing policies—can help mitigate the risk of coverage denials and enhance protection against AI–related legal challenges. Engaging experienced insurance brokers and coverage counsel can further strengthen policy terms, close potential gaps and facilitate comprehensive risk coverage in the evolving AI landscape.
