Insurance for AI: How to Secure Your Firm as Insurers Retreat (Part 2)

Against a backdrop of heightened risk and fast-dwindling options from traditional carriers, businesses are finding routes to secure dedicated Generative AI insurance protection with specialised providers like Testudo, a Lloyd’s coverholder.

Testudo provides financial protection against third-party lawsuits triggered by Generative AI outputs, whether that involves financial loss, property damage, defamation, copyright infringement, or unauthorized data disclosure. Uniquely, Testudo assesses exposures using a proprietary model that tracks global AI litigation trends, and other relevant external factors. This means that LLM evaluations are not required, and quotes are provided within 48 hours.

The AI Litigation Wave

A wave of AI litigation is breaking across America. Plaintiffs are filing diverse lawsuits with increasing frequency and with larger sums at stake. Notable examples include:

• A $1.5bn out-of-court settlement agreed by Anthropic in a class action brought by authors who accused the firm of copyright infringement, by improperly using their works for AI training data.
• Multiple lawsuits against OpenAI, ranging from wrongful death, involuntary manslaughter and negligence to copyright infringement cases brought by independent authors and The New York Times.

These cases demonstrate how quickly allegations can spiral into massive liability for Generative AI outputs.

The AI Reckoning Begins

While a handful of U.S. insurers are the first to reckon with AI risk, this is likely just the beginning. The UK and European markets are expected to follow suit at some point as unexpected AI losses hit their books. In London, the Lloyd’s Market Association has already surveyed insurers to estimate the scale of major AI loss scenarios.

Most insurers are only just beginning to grasp the potential for large AI claims. In the immediate future, companies deploying Generative AI should dissect their policy wordings to distinguish between what is clearly covered and what is not. Where AI coverage is confirmed, business leaders will need to assess whether their policy limit is sufficient.

Given the prevalence of exclusions, organizations are increasingly investigating standalone coverage for Generative AI. A key challenge for leaders is understanding how insurers will price their unique set of AI risks, and whether an invasive evaluation of the LLM is required in advance of offering insurance.

With Generative AI ubiquitous in operations, organizations may find that standalone Generative AI coverage offers the most reliable route to securing protection.

How can I get an AI insurance Quote?

Next steps:

• The Testudo team is here to help you explore your AI insurance options. Get in touch to assess your AI exposure and how to manage your company’s risk.
• Check out our Research & Insights blog for more AI insurance news.

Does cyber insurance cover generative AI?

Standard cyber insurance does not affirmatively cover generative AI liability. Most cyber policies were written before the mass adoption of modern AI and leave coverage for AI-generated losses 'silent' or legally ambiguous. The AI insurance coverage gap is why enterprises are turning to standalone Gen AI liability insurance that responds affirmatively to third-party claims from AI outputs.

What insurance covers generative AI liability?

Testudo's standalone Gen AI liability insurance provides financial protection against third-party lawsuits triggered by generative AI outputs, covering financial loss, property damage, defamation, copyright infringement, and unauthorized data disclosure. As a Lloyd's coverholder, Testudo assesses risk using proprietary litigation data, meaning no invasive LLM evaluation is required and quotes are provided within 48 hours. Brokers can access coverage through the Broker Hub.

Does commercial general liability cover AI?

No. Verisk and ISO CGL exclusions for generative AI took effect January 1, 2026. Most CGL policies now explicitly exclude losses from generative AI outputs, leaving enterprises that have deployed AI tools with no financial protection under their existing liability cover. Part 1 of this series covers the full scope of CGL, Cyber, and Tech E&O exclusions and the steps businesses should take to audit their coverage.