Editorial: AI boasts need a reality check

Expectations for the possibilities that artificial intelligence holds for all organizations remain sky-high. No doubt, we have yet to fully understand how much the technology will change what we do; what we do know is that companies should be wary of boasting about how effective their use of AI will be until they have proof that stands up in court.

As we report here, litigation over claims about the effectiveness of AI is a small but rapidly growing area of corporate law, with significant implications for the directors and officers liability insurance sector.

Dubbed “AI-washing” suits, in a nod to the “greenwashing” cases of the 1980s, the securities class actions allege that companies attracted investments or increased their stock price by making exaggerated or fabricated claims about their use or development of AI.

In several recent suits, technology companies have been accused of violating securities laws by overestimating how AI would boost their financial performance. In other cases, companies allegedly overstated their use of AI or didn’t use the technology at all.

Given all the assertions that have been made over the past few years regarding the transformational effects AI will have, it’s hardly surprising that some of those projections have been shown to fall short of reality. For instance, the hype about the technology barely took off before users discovered that, despite the omniscient tone of some popular generative AI platforms, some of the information they provided was more artificial than intelligent.

The knock-on effect of the lawsuits on D&O claims is still to be determined, but there will surely be many disputes over who should pay for what. Complicating the determination of liability is the evolving global regulatory and legal environment for the technology, with various international bodies ruminating over and implementing rules and guidelines.

But companies accused of overstating their AI prowess should be concerned about more than the disruption caused by litigation, the ensuing insurance coverage issues, and regulatory fines. Exaggerating the benefits of AI erodes investor and consumer trust in both the organizations and the technology itself.

To guard against such damaging developments and avoid becoming the next example of how not to communicate about AI use, companies should err on the side of caution in stating how they will benefit from implementing or developing the technology, distinguish between future ambitions and present reality, document their AI usage, and stay updated on regulations as they come into force.

The AI-washing suits signal a new area of accountability for technology usage that companies of all types need to be aware of, as investors and their representatives show that AI is not the only thing that learns quickly.