AI Indemnity
Purpose: Protects the business from financial losses, legal liabilities, and third-party claims resulting from specific failures of the AI tool provided by the supplier, such as technical errors, IP infringement, or non-compliance with regulations. The indemnity will likely be limited and backed up by insurance that the supplier holds.
Importance: With AI systems, errors, biases, and compliance issues can have significant consequences. An indemnity agreement shifts liability for certain AI failings back to the supplier, who has control over the AI’s core functioning.
Risks Without It: Without this indemnity, the business assumes the full burden of any losses or claims arising from AI errors, potentially leading to financial loss, damaged reputation, and strained customer relationships. Legal and regulatory non-compliance could result in penalties, while IP infringement claims could escalate into costly legal disputes.
What It Guards Against: Protects the business from covering the cost of damages if the AI tool produces incorrect or biased outputs that harm clients or end-users, shields the business from liability if the AI service infringes third-party intellectual property rights, reduces the risk of penalties if the AI tool fails to comply with data privacy laws.