For a number of reasons, it is not surprising that California has been proactive in legislating the use of AI. AI technology has largely emerged from California\u2019s technology sector. The potential impact of AI has also been a hot topic in the entertainment industry and creator economy. Governor Gavin Newsom signed a number of bills into law aimed at addressing \u201cdeep fakes\u201d (audio and visual media manipulated by AI to appear real), explicit material, and misinformation.<\/p>\n
Governor Newsom also signed laws supported by artists and entertainment industry unions. Insurers in the professional liability space may be particularly interested in the following:<\/p>\n
- \n
- Training Data Transparency (AB-2013, eff. Jan. 1, 2026):<\/strong> Open-source generative AI providers will be required to share \u201c[a] high-level summary of the datasets used in the development of the [AI] system or service.\u201d Notably, such disclosures would include whether the developer used copyrighted or trademarked material, whether the developer purchased or licensed the datasets, and whether the datasets include personal information. Developers must also disclose other descriptions of the datasets that would help users assess the reliability of the outputs generated.<\/li>\n
- AI Transparency Act (SB-942, eff. Jan. 1, 2026): <\/strong>AI providers will be required to provide users with AI detection tools at no cost. Additionally, this bill contains disclosure requirements pertaining to AI-generated content, including latent metadata disclosures. Violations can result in civil penalties of $5,000 per violation, although the bill does not provide for any private right of action.<\/li>\n
- Health Care Services (AB-3030, eff. Jan. 1, 2025): <\/strong>Health care providers must disclose the use of AI in generating communications made to patients pertaining to clinical information. In addition to making a disclaimer, providers must inform patients how they can contact a human.<\/li>\n
- Privacy (AB-1008, eff. Jan. 1, 2025): <\/strong>This amendment to the California Consumer Privacy Act (\u201cCCPA\u201d) seeks to extend existing privacy protections regarding data processing and use to AI systems.<\/li>\n<\/ul>\n
- \n
- Employment and Intellectual Property (AB-2602 and AB-1836, eff. Jan. 1. 2025):<\/strong> These bills were of particular interest in the entertainment industry and were supported by SAG-AFTRA. Under AB-2602, labor agreements pertaining to the use of a person\u2019s digital replica are unenforceable unless certain requirements are met. Most notably, the requirements include both legal and union representation in the negotiation of such an agreement. Protections pertaining to the use of a person\u2019s digital replica extend after the person\u2019s death pursuant to AB-1836.<\/li>\n<\/ul>\n
The suspense in the business and legal communities was particularly palpable regarding the fate of SB-1047, known as the Safe and Secure Innovation for Frontier Artificial Intelligence Models Act. The bill targeted very large AI models with extraordinary computing power and carried the potential for civil penalties. Ultimately, Governor Newsom vetoed SB-1047. In his comments, Governor Newsom appeared to favor a risk-based approach based on the use of AI in \u201ccritical decision-making,\u201d rather than based on the model size or cost.<\/p>\n
The EU<\/em><\/p>\n
The EU is a highly-regulated environment for technology companies, compared to the US. The EU Act is no exception, with broad application to those involved in any aspect of the AI ecosystem with a link to the EU market.<\/p>\n
The EU Act classifies AI systems according to four risk levels: (1) unacceptable; (2) high; (3) limited; or (4) minimal. In the unacceptable risk category are those AI systems considered to pose a threat to people by way of cognitive behavioral manipulation, social scoring, biometric categorization, or facial recognition. The high risk category is relevant to the insurance industry, as it includes pricing and risk assessment by life and health insurers. Limited and minimal risk AI systems must still comply with transparency and disclosure requirements pertaining to the input used and indicated in connection with output.<\/p>\n
Conclusion<\/em><\/p>\n
The risks of AI that the California legislature and EU Parliament have sought to address indicate potential areas of risk for insurers leveraging AI tools in their own operations or assessing claims pertaining to the use of AI. Policies often contain exclusions for intentional acts that includes violations of laws. As the legal landscape continues to evolve regarding AI, insurers should stay up to date regarding what does and does not constitute legal uses of AI.<\/p>\n
Lawmakers are faced with the challenge of addressing potential AI risks without stifling technological innovation. In the U.S., California appears to be at the forefront, establishing the floor for AI regulation among state legislatures. California\u2019s recent slate of AI-related laws have a fair amount in common with the EU\u2019s AI Act, indicating to business and insurers where AI regulation, including at the U.S. federal level, may be headed.<\/p>\n
Meet the Authors<\/strong><\/p>\n
![\"Headshot](\"https:\/\/plusweb.org\/wp-content\/uploads\/2024\/09\/limber_natalie-1.jpg\")
Natalie Limber<\/strong><\/p>\nNatalie Limber is counsel in Dentons\u2019 Los Angeles office. She has a broad range of combined law firm and in-house experience with a focus on serving the legal and regulatory needs of the insurance industry. Prior to joining Dentons, she held roles in claims and corporate legal with a large national P&C carrier, including leading the corporate internal investigation team and serving as general counsel to the company\u2019s Insurtech business unit. She was previously a partner at a law firm in Chicago representing insurers in matters around the country with a focus on excess, professional liability, management liability and commercial lines. Her current practice is focused on defending insurers in bad faith litigation across policy lines.<\/p>\n
![\"Headshot](\"https:\/\/plusweb.org\/wp-content\/uploads\/2024\/11\/Margolis-Justine-n.jpg\")
Justine Margolis<\/strong><\/p>\nJustine Margolis is a member of Dentons’ Litigation and Dispute Resolution practice. Justine represents companies facing class actions and complex commercial litigation, and has a strong track record of success in trial and appellate courts. She has experience defending insurers and financial services companies in complex cases in both state and federal courts. Her practice covers a wide variety of substantive areas, including securities fraud, consumer fraud and deceptive trade practices, coverage disputes, and breach of contract. Justine also has specialized experience defending companies against allegations regarding actuarial negligence and\/or fraud.<\/p>\n
![\"Headshot](\"https:\/\/plusweb.org\/wp-content\/uploads\/2024\/11\/de-la-Chapelle-Frederique.jpg\")
Fr\u00e9d\u00e9rique de La Chapelle<\/strong><\/p>\nFr\u00e9d\u00e9rique de La Chapelle is a Partner in the Dentons Paris office and Head of Europe Insurance group. She is renowned in regulatory and dispute resolution matters in the insurance and reinsurance sectors. Fr\u00e9d\u00e9rique assists domestic and international clients with all questions relating to inter alia regulatory insurance, transactions, partnerships agreements, transactional insurance, the structuring of insurance products (including affinity insurance), review and adaptation of insurance policies, review and negotiations of reinsurance agreements, licensing and, portfolio transfer. Fr\u00e9d\u00e9rique\u2019s clients include insurers, reinsurers, CAC40 companies and brokers.<\/p>\n
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- AI Transparency Act (SB-942, eff. Jan. 1, 2026): <\/strong>AI providers will be required to provide users with AI detection tools at no cost. Additionally, this bill contains disclosure requirements pertaining to AI-generated content, including latent metadata disclosures. Violations can result in civil penalties of $5,000 per violation, although the bill does not provide for any private right of action.<\/li>\n