Artificial Intelligence & Legal Liability Using AI: What Happens When Artificial Intelligence Goes Wrong?

These wins are no doubt appealing but as a Commercial Dispute Lawyer, it is ingrained in me to wonder where does the risk lie and who is ultimately responsible for the use of AI and who pays if it goes wrong?

The legal responsibility for AI and its use, involve several key areas of law namely contract law, tort law (negligence), product liability, employer’s liability, and professional liability.

1. Contractual Liability

• Business-to-Business Contracts: If the AI was provided by a third-party supplier under a contract and it is not the correct product (i.e., does not perform as agreed), the business may have a breach of contract claim against the AI supplier. The business would need to show that the AI product failed to meet the specifications or performance standards promised in the contract. Exclusion Clauses: Many AI supply contracts will contain exclusion or limitation clauses that will attempt to restrict the supplier’s liability.
• Business-to-Customer Contracts: If the improper use of AI causes losses to customers (e.g., incorrect or  recommendations), the business itself may be liable under the contracts it holds with those customers. This can result in claims for breach of contract, particularly if there is a failure to meet the standards expected of the business.

2. Negligence

• Where the business or its employees could be liable for negligence if they fail to use the AI product correctly, leading to foreseeable losses for the business or its customers. Duty of Care: The business owes a duty of care to its customers and stakeholders to operate its systems responsibly, which extends to using AI products properly. Breach of Duty: Improper use of AI—such as relying on incorrect data, failing to maintain or update the system, or misapplying its recommendations—could be a breach of this duty. Causation and Loss: The affected party would need to prove that this breach caused their loss directly, and that the loss is not too remote (i.e., it was a foreseeable consequence of the improper use of the AI).

3. Product Liability

• If the AI system itself is defective and this causes loss, the business may have a claim under the Consumer Protection Act 1987 for product liability against the AI developer or manufacturer. Defective Products: AI would be treated as a product, and if it does not provide the safety or functionality expected, the developer may be held strictly liable for any losses caused, without the need to prove negligence.

4. Employers’ Vicarious Liability

• If an employee of the business uses the AI system improperly, the business may be vicariously liable for that employee’s actions. This is a form of strict liability, where employers are held responsible for wrongs committed by employees in the course of their employment.

5. Professional Liability

• Certain professionals within a business (e.g., financial advisers, lawyers) who rely on AI to provide advice may have additional responsibilities. If they misuse AI, they could face professional negligence claims. Regulatory bodies, like the Financial Conduct Authority (FCA) or Solicitors Regulation Authority (SRA), may also take action if professionals fail to meet expected standards when using AI tools.

8. Regulatory Considerations

• Certain sectors like healthcare, financial services, or insurance may have specific regulatory obligations regarding the use of technology and AI. Failing to use AI properly or using the wrong AI product could result in regulatory sanctions in addition to private claims. For example, under the General Data Protection Regulation (GDPR), improper use of AI that results in misuse of personal data could lead to significant fines and penalties for non-compliance.

Whilst AI can offer significant wins, it is could also leave your business exposed to unforeseen risks and potential legal claims. Ensuring that your business is adequately protected at the outset will pay dividends in the long run.

If you are contemplating implementing AI in your business, or have an AI dispute? Contact Laura Hill or another of our expert commercial litigators.