Insurers Exclude AI From Liability: What CG 40 47 Means for MSPs

Dave Sobel (0:02)

Since January, your insurer has been able to remove artificial intelligence from your liability coverage using a form called CG 4047 It attaches at renewal. Nobody sends a notice. This is The Business of Tech. I'm Dave Sobel.

Something changed in the paperwork this industry runs on, and it arrives one renewal at a time. Start with Verisic. Through its ISO division, Verisic publishes the standard policy language most American commercial insurers build their forms on, and it has put three new endorsements into circulation carrying a January 2026 edition date, CG 4047, CG 4048, and CG 3508 What they do is let a carrier exclude losses arising out of Generative Artificial Intelligence from a commercial general liability policy. The broad form removes bodily injury, property damage, and personal and advertising injury. These are optional. Each carrier decides whether to attach them, and they attach at renewal. There is no announcement. Your coverage changes on the day your policy rolls over. It is not only general liability. Trade coverage has carriers moving to write AI-related harms out of liability, directors and officers, and cyber policies. And WR Berkeley has filed broader absolute AI exclusions across D&O, errors and emissions, and fiduciary lines. Now, the size of the thing being excluded. Chubb's Cyber Claims Report found the average American claim for a large company hit $4.4 million, roughly double the year before, while mid-market claims rose 22 percent, and the number of claims went down in both. Then look at who is sitting in the chair when one lands. Sophos published research —that is, a security vendor researching the market it sells into, so weigh it accordingly— finding that MSPs estimate 46 percent of their customers already rely on them to act as Chief Information Security Officer.

And the trigger is ordinary. One trust's governance report —again, a governance software company surveying its own buyers— found nearly half of organizations had at least one incident in the past year where an AI system took an action nobody approved. Four counts. The coverage is narrowing. The losses are getting larger. The provider is holding the security seat. And the unapproved action is already routine.

None of that is an accident of the technology, and it's worth asking why the paperwork looks like this in the first place.

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The MSPs getting ahead in security aren't adding more tools. They're getting the work off their plate. Guards consolidates the stack, end point, email identity, and then puts an autonomous analyst on top of it, triaging the alerts, correlating the signals, drafting the client reporting automatically. It's purpose-built for MSPs protecting SMB clients month to month. Real SecOps without hiring a SecOps team. Start at guards.com, that's guardz.com.

Software manufacturers carry almost no liability for what their products do. That is not a property of software. It is a choice made in three places, and it can be unmade in the same three places. The first is the question of whether software is a product at all. Most courts have held it isn't. The definition they work from calls a product, tangible personal property, distributed commercially. And courts have consistently held that information, guidance, ideas, and recommendations don't qualify. An AI system produces exactly that, information and recommendations. No product, no product liability. The second is the economic loss rule. It bars a buyer from suing a manufacturer in negligence to recover purely financial losses when a product fails to perform as expected. Almost every AI failure is purely financial loss. A bad output, a wrong decision, a client harmed on paper. Which leaves the third place, and the third place is the contract. That is the license agreement, and the license agreement disclaims. Now, you might reasonably say software really is different. The deployer shapes it with their prompts, their data, their integrations, so the maker can't own the outcome. Here is where that stops working. A manufacturer selling you a support contract is being paid to stay involved in how the thing runs. Toyota cannot sell you a service plan and then argue the brakes become your problem in the parking lot. This is not a fringe reading. The 2023 National Cybersecurity Strategy said it in the government's own words, that makers with market power can fully disclaim liability by contract and called for legislation to stop it. Officials said it might take a decade. It has been more than three years and nothing has passed. Senators Durbin and Hawley introduced a bill in September 2025 to classify AI systems as products. Hawley's argument was the toy car. Break one, and the parents can sue the maker. It sits in committee.