AI isn’t a crystal ball — it’s a high-performance engine. Handle it right, and you’ll cover more ground, faster. Understanding today’s evolving AI regulations and the intersection of law and AI is no longer optional for business owners — it’s a competitive necessity.
A Scene You Don’t Want to Star In
A Columbus CEO signs a vendor agreement generated by an AI contract tool. It appears solid with clean formatting, boilerplate clauses in all the right places. Two weeks later, a supplier disputes a key term, a regulator sends a follow-up letter, and your insurance broker says coverage may not apply because “the contract didn’t come from a recognized source.”
The founder’s first thought? Blame the AI.
Reality check: in the eyes of the law, the liability sits squarely with the company. When it comes to the law and AI, there’s a lot of responsibility on the user.
Every month I see more businesses in Ohio and beyond stepping into this trap with the law and AI. The speed and accessibility of AI tools is seductive — but in the transactional world, AI legal issues can create costly, hidden landmines.
The Four Risk Zones for Businesses Using AI
1. Ownership & Intellectual Property:
Who actually owns AI-generated work product? In many cases, the answer is very simply not you. The U.S. Copyright Office has made it clear: works without meaningful human authorship aren’t protected. That means an AI and copyright marketing brochure, software code, or product design could be legally copied by others. If your competitive edge depends on exclusivity, this is a deal-breaker — and a growing front in AI copyright infringement claims.
2. Data Privacy & Security:
If you feed AI sensitive client information, trade secrets, or proprietary processes without airtight protections — and you’re taking on the real risks. For starters, never use a free AI product for business-critical work. Always remember: if you’re not paying for it, you (and your data) are the product. That information could end up accessible to the AI provider’s developers, other users, or even the public. In regulated sectors, that exposure can trigger compliance violations, fines, or contract breaches. In any sector, it erodes trust — and can put you in violation of emerging AI regulations around data handling.
3. Liability for AI Decisions:
AI can produce polished, confident — and completely wrong — results. If an AI-generated contract clause leaves you exposed, or an AI-generated report misstates key facts, it’s your name on the document. Courts and counterparties won’t accept “the AI wrote it” as a defense. Without contractual safeguards, indemnities, and rigorous human review, you’re the one on the hook. This is a growing risk in AI litigation, where businesses are being challenged over reliance on inaccurate machine-generated work product.
4. Insurance Gaps:
Many professional liability, E&O, and cyber policies either don’t mention AI or expressly exclude AI-related claims. Some insurers are starting to offer specialized products — like Lloyd’s-backed “Armilla” covering AI hallucinations and performance failures — but these are rare and selective. If your policy doesn’t explicitly address AI, you may be paying for coverage that vanishes the moment you need it. Additionally, many insurers treat AI as if it’s “outsourcing to a contractor,” which can trigger required subcontractor clauses and protections—meaning you may need to ensure you’re added as an additional insured on your vendor’s policy to rely on their coverage.
Why This Matters Now
Eve AI’s Funding Signals a New Era
Earlier this year, Eve, an AI-native legal platform, raised $47 million in Series A funding led by Andreessen Horowitz. Eve’s tools can handle entire legal workflows — from intake to document generation — for law firms serving business clients. The message: AI tools aren’t fringe experiments anymore. They’re getting serious capital and serious adoption. The companies that adapt now will be best positioned to handle artificial intelligence legal issues before they become lawsuits.
Demand for AI-Literate Advisors is Rising
As James O’Dowd recently noted, AI is reshaping the professional services talent market. Clients expect advisors who understand both the technical and legal sides of AI. For business owners, that means your outside counsel needs to be as comfortable stress-testing an AI-generated clause as drafting one from scratch (and to understand the rules of AI in your industry).
The Legal Lag is a Double-Edged Sword
Legislation and regulation always trail new technology, and AI regulations are no exception. This lag gives innovative companies room to move quickly — but also means you’re operating in a gray area where liability, IP protection, and compliance rules aren’t fully settled. That’s where the worst surprises — and the best opportunities — live.
The legislative rules of AI are still being written, so to speak, but businesses that proactively align with anticipated AI laws and standards will have a market advantage.
Four Steps to Protect Your Business Before the Gap Closes
Artificial intelligence is moving quickly, and the legal world is playing catch up. With AI laws right around the corner, here are a few ways to take the initiative and set yourself up for future success in this emerging space.
- Update Your Contracts
Add AI-specific provisions to your agreements. Define ownership of AI-generated work, set performance and accuracy standards, and address confidentiality. - Implement Internal AI Policies
Clearly outline when and how AI tools can be used in your operations. Require thorough human review before any AI-generated work is finalized or shared externally. - Vet Your Vendors
Ask whether vendors use AI in delivering products or services to you. If they do, require disclosure, indemnities, and proof of insurance that covers AI-related risks. - Review Your Insurance Coverage
Don’t assume you’re covered. Work with your broker to identify exclusions, negotiate AI-specific endorsements, or secure supplemental coverage to avoid AI legal issues down the road.
The Bottom Line on Law and AI
AI won’t replace lawyers in the transactional space anytime soon, but it’s already reshaping the way contracts are drafted, reviewed, and negotiated. That means more speed, but also far greater exposure.
The businesses that thrive in this new environment will be the ones that adopt AI with their eyes open — pairing speed and efficiency with legal frameworks that protect their interests, and staying ahead of AI legal issues before they escalate into artificial intelligence litigation.
If your business is using AI, or if you suspect your partners and vendors are, now is the time to future-proof your contracts, policies, and insurance for the imminence of AI laws. Schedule a consultation now and protect yourself before the gap between law and AI closes.