Insurance companies eagerly are adopting predictive analytics and even generative AI for underwriting, premium calculation, claims adjustment, and other functions previously done in-house. This shift is raising novel substantive, procedural, evidentiary, and discovery issues, not the least of which is the need for computer experts to explain everything from how algorithms work to attempting to justify their accuracy and reliability.

Policyholders assert that using software expressly designed to favor the insurance company is irreconcilable with the duty of utmost good faith and have filed the suits to show it.

These cases assert that AI fails to fairly and honestly investigate claims, uses formulas that artificially and unfairly lower settlement amounts, and is based on historically biased and inaccurate claims payment data incorporating decades of stereotypes and artificially suppressed values. Insurance companies and brokers are facing lawsuits for breach of contract, unjust enrichment, bad faith, RICO, conspiracy, negligence, professional malpractice, and in some states, violation of consumer protection laws.

Three learning objectives:

• Insurance companies might use the technology to unfairly curtail or deny policyholders’ claims
• Watchdogs and regulators need to demand that AI tools under development afford “explainability” and protect policyholder rights
• Insurance companies must stand by their fundamental duty of good faith to policyholders, and courts must maintain long-standing precedent that demands “decency and humanity” in insurance company claims operations.