USA – NEW YORK Trends and Developments Contributed by: Ian Boczko and Sunny S. Jeon, Wachtell, Lipton, Rosen & Katz
By distinguishing recent decisions from other courts siding with insurers on the exclusion’s reach, the Har- man decision articulates significant limiting principles for courts to cabin the bump-up exclusion’s applica- tion. The decision reinforces that even where a com- plaint challenges merger consideration, insurers must still demonstrate that the settlement itself functioned as additional consideration before a bump-up exclu- sion will apply. The decision’s analysis also under- scores how differences in policy language, including the precise formulation of certain exclusions, may lead to different coverage outcomes. Artificial Intelligence Likely to Become the Next Insurance Coverage Battleground Artificial intelligence (AI) is quickly becoming a focal point of insurance coverage negotiations. As AI-relat- ed litigation proliferates – including claims involving intellectual property, privacy, consumer protection, and professional liability – insurers are increasingly responding through refinements, and potential cov- erage limitations in policy language. At the same time, “silent” coverage continues to exist for the AI-related risks that commonly accompany major technological innovations, including those arising from disclosure obligations, corporate governance, and board over- sight. Yet AI also presents unique challenges, includ- ing the unprecedented pace of its adoption and the ability of boards of directors to meaningfully under- stand and oversee AI-related capabilities. In addition, new endorsements, exclusions, sublimits, and defini- tional changes directed at “generative AI” or AI-assist- ed activities have begun appearing across a range of commercial policies. AI is also reshaping professional- risk profiles, including within the legal industry itself. So-called “AI hallucinations” – the generation of inac- curate or entirely fictitious citations, authorities, or fac- tual assertions – have emerged as a recurring source of concern for lawyers and other professionals using generative AI tools. The phenomenon has become sufficiently widespread that commentators now main- tain databases tracking court decisions addressing AI-generated hallucinations in legal filings. According to one such database, as of 7 August 2026, courts worldwide had addressed over 1,840 cases involv- ing alleged AI hallucinations, including over 920 cases during 2026 alone, with at least 39% involving attor-
neys rather than merely pro se litigants. See Damien Charlotin, AI Hallucination Cases (last visited 7 August 2026). As courts, regulators, and litigants continue to grapple with AI-related conduct and its consequences, insur- ers and policyholders alike are evaluating whether traditional professional liability, cyber, D&O, E&O, and related coverages adequately address risks aris- ing from AI-assisted activities, including professional errors resulting from AI-generated outputs. The most significant AI coverage disputes may be won or lost at policy placement. As with cyber risks a decade ago, the market appears to be entering a period in which coverage outcomes will depend heavily on policy drafting and underwriting practices. Policyhold- ers should therefore evaluate AI-related exclusions, endorsements, sublimits, and definitional changes with the same scrutiny traditionally applied to cyber, intellectual property, and professional-liability provi- sions. Conclusion The year’s developments reflect a continued empha- sis on policy language and the precise nature of the underlying conduct at issue. Courts generally resisted efforts to expand exclusions beyond their stated terms, whether in the context of subsequent acts exclusions, disgorgement exclusions, or D&O bump-up provisions. At the same time, courts gener- ally declined to adopt categorical coverage defences, instead focusing on the particular remedy at issue, the specific policy language, and the reasonable expecta- tions reflected in the parties’ bargain. The decisions also illustrate the growing importance of policy drafting and claims-handling practices. Com- mercial parties continued to benefit from New York’s willingness to enforce bargained-for choice-of-law provisions, while insurers faced scrutiny not only for coverage determinations, but also for the manner in which claims are investigated and adjusted. Looking ahead, emerging risks associated with artificial intel- ligence are likely to accelerate these trends, placing even greater emphasis on underwriting decisions, policy wording, and careful allocation of risk at the time coverage is purchased.
347 I NSURANCE L I T IGATI O N 2026
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