AI Product Liability and Negligence Lawsuits

Artificial intelligence is making decisions that affect people's health, finances, employment, and safety every day.

Hospitals use AI to help prioritize patients and recommend treatment. Insurance companies use it to evaluate claims. Employers use it to screen job applicants. Banks rely on AI to detect fraud, review transactions, and evaluate credit applications. Businesses across nearly every industry now trust AI systems to make decisions that once required human judgment.

When those systems fail, the consequences can be immediate.

• A patient may lose access to medically necessary treatment.
• A qualified applicant may never receive an interview.
• A family's bank account may suddenly be frozen without explanation.
• A consumer may rely on false AI-generated information and suffer significant financial loss.

Artificial intelligence may automate decisions, but it does not eliminate accountability. Companies still choose how these systems are designed, tested, marketed, and deployed. When defective AI products or negligent implementation cause real harm, those companies may be held legally responsible.

If you or a loved one suffered physical injury, financial loss, or other measurable harm because of an AI system, The Lyon Firm can evaluate your potential legal claim. Attorney Joseph Lyon has decades of experience representing individuals harmed by dangerous products, corporate misconduct, and emerging technology failures. 

Call (513) 381-2333 or contact us online for a free, confidential consultation. This page discusses developing areas of law, and every case depends on its own facts.

Can You Sue an AI Company?

In many situations, yes.

Artificial intelligence companies do not receive blanket immunity simply because software made the decision instead of a person.

Whether you have a claim depends on several factors, including:

• What the AI system was designed to do
• How the system failed
• Whether the company adequately tested the technology
• Whether the company warned users about known risks
• Who relied on the AI's output
• The type of harm that resulted

Depending on the circumstances, legal claims involving artificial intelligence may include:

• Product liability
• Negligence
• Failure to warn
• Fraud or negligent misrepresentation
• Consumer protection violations
• Defamation
• Breach of contract

Courts across the country are beginning to apply longstanding legal principles to emerging AI technologies. While the law continues to evolve, judges have already allowed several significant AI lawsuits to move forward.

What Is Agentic AI?

Agentic AI refers to artificial intelligence systems that can make decisions and complete tasks with minimal human involvement.

Unlike traditional software that performs a single function after receiving a command, agentic AI can analyze information, determine the next steps, and carry out multiple actions on its own.

Businesses increasingly rely on these systems to automate decisions involving:

• Healthcare and patient care
• Insurance claims
• Employment screening
• Banking and financial services
• Customer service
• Fraud detection
• Investment recommendations
• Government services

As businesses give AI greater authority over decisions that affect people's lives, the risks also increase. A single design flaw or programming error can affect thousands—or even millions—of people before anyone realizes something has gone wrong.

Three characteristics make AI-related failures particularly concerning.

• Scale: One defective model can generate thousands or millions of incorrect decisions before the problem is identified.
• Speed: Automated systems can approve, deny, recommend, or reject requests within seconds, often without meaningful human review.
• Lack of Transparency: Many people never learn how an AI system reached its decision. They may receive a denial, rejection, or recommendation without understanding the data considered, the factors weighed, or whether a person reviewed the outcome.

How Do Product Liability and Negligence Laws Apply to Artificial Intelligence?

Artificial intelligence may be new, but the legal principles governing dangerous products are well established.

For decades, courts have held manufacturers responsible when defective products cause injury. Those same principles are now being tested against AI systems that make decisions affecting health, safety, finances, and employment.

Two legal theories appear most often in emerging AI litigation.

Product Liability

Product liability focuses on the product itself.

Plaintiffs may argue that an AI system contained a design defect, lacked adequate safety features, or failed to warn users about known risks.

One of the first legal questions courts must answer is whether AI software qualifies as a "product" for purposes of product liability law.

At least one federal court has allowed those claims to proceed. In Garcia v. Character Technologies, a judge concluded that a chatbot application could be treated as a product at the pleading stage because the allegations focused on how the software was designed rather than simply what it said.

Although courts will continue to address this issue, the decision signals that AI developers may face the same types of product liability claims long applied to manufacturers of traditional consumer products.

Negligence

Negligence focuses on the company's conduct rather than the product itself.

Companies developing or deploying AI systems have a duty to act reasonably when designing, testing, marketing, and implementing their technology.

Potential negligence claims may arise when companies:

• Release AI systems without adequate testing
• Ignore known safety risks
• Fail to monitor products after deployment
• Market AI capabilities that the technology cannot reliably perform
• Remove or weaken important safety guardrails
• Encourage reliance on AI where human oversight is necessary

In many cases, plaintiffs may pursue both product liability and negligence claims based on the same underlying events.

Can AI Companies Avoid Liability by Blaming the Software?

Generally, no.

Artificial intelligence does not make independent legal decisions or assume legal responsibility for its own actions.

Companies decide how AI systems are designed, trained, tested, marketed, and deployed. They also decide whether people will rely on those systems to make important decisions involving healthcare, employment, finances, or public safety.

Several recent cases have rejected arguments that companies can avoid responsibility simply because an automated system generated the output. Instead, courts have focused on whether the businesses behind the technology exercised reasonable care and fulfilled their legal obligations.

As AI becomes more deeply integrated into everyday life, courts are increasingly evaluating these cases using traditional principles of product liability, negligence, and consumer protection law rather than creating entirely new legal standards.

Who Can Be Held Responsible When an AI System Causes Harm?

When an artificial intelligence system causes harm, the company using the technology is not always the only party that may be responsible.

Many AI products are designed, trained, customized, and deployed by multiple companies before they ever reach consumers. Depending on how the technology was developed and used, more than one business may share legal responsibility.

Potentially responsible parties may include:

• The company that developed the AI model
• A business that customized or modified the software
• The organization that deployed the system
• A company that marketed the technology with misleading claims
• Businesses that relied on AI when meaningful human review was necessary

Determining who should be named in a lawsuit requires a careful investigation into how the system was designed, tested, marketed, and ultimately used.

Attorney Joseph Lyon has decades of experience handling complex product liability, consumer protection, and technology-related litigation. The Lyon Firm investigates how AI systems were developed and deployed to identify every potentially responsible party.

How Is Artificial Intelligence Already Affecting People's Lives?

Artificial intelligence is no longer limited to chatbots or virtual assistants. Businesses now use AI to make decisions that affect healthcare, employment, insurance coverage, banking, education, and many other aspects of everyday life.

When these systems work as intended, they can improve efficiency and help people make faster decisions.

When they fail, the consequences can extend far beyond a software error.

What Happens When AI Is Used in Healthcare?

Healthcare is one of the fastest-growing applications for artificial intelligence and one of the areas where mistakes can have the most serious consequences.

Hospitals, physicians, and healthcare organizations increasingly rely on AI to assist with:

• Prioritizing emergency room patients
• Reviewing medical imaging
• Flagging abnormal laboratory results
• Recommending treatment options
• Predicting patient deterioration
• Monitoring patients remotely
• Planning hospital discharges

These tools are designed to support healthcare professionals, not replace their medical judgment.

When AI systems generate inaccurate recommendations, overlook critical information, or are deployed without appropriate safeguards, patients may suffer delayed diagnoses, unnecessary procedures, denied treatment, or preventable injuries.

Healthcare providers also have responsibilities when adopting AI technology. Those responsibilities include understanding the system's limitations, validating its performance, maintaining physician oversight, and responding quickly when safety concerns arise.

As AI becomes more deeply integrated into healthcare, hospitals, healthcare providers, software developers, and medical technology companies may all face legal scrutiny when defective systems contribute to patient harm.

What Happens When AI Is Used by Insurance Companies?

Insurance companies increasingly rely on artificial intelligence to review claims, evaluate prior authorization requests, detect fraud, and process large volumes of information.

Automation can improve efficiency, but speed should never replace individualized decision-making.

Several lawsuits have already challenged whether insurers relied too heavily on AI when making decisions that affected medically necessary care. When an automated system improperly recommends denying treatment or coverage without meaningful human review, policyholders may experience delayed care, unexpected medical bills, or the loss of important health benefits.

Depending on the circumstances, legal claims may involve the insurer, the AI developer, or both.

How Is AI Changing Hiring Decisions?

Many employers now use artificial intelligence before a recruiter or hiring manager reviews an application.

AI-powered hiring tools may:

• Screen résumés
• Rank applicants
• Match candidates to open positions
• Evaluate interviews
• Predict future job performance

These systems promise efficiency, but they also raise concerns about bias, transparency, and accountability.

Several lawsuits allege that AI hiring tools disproportionately affected applicants based on age, race, disability, or other protected characteristics. Courts are beginning to examine whether technology vendors, employers, or both may bear responsibility when automated hiring systems produce discriminatory results.

Can AI Cause Financial Harm?

Artificial intelligence now plays an important role in banking, lending, investing, tax preparation, and fraud detection.

Examples include:

Banking and Fraud Detection

Banks use AI to identify suspicious transactions and possible fraud.

Although these systems help protect consumers, mistakes can freeze bank accounts, block legitimate purchases, interrupt automatic payments, or prevent families from accessing their own money.

Investment Platforms

Investment firms increasingly market AI-powered investment tools and financial guidance.

When companies overstate what these systems can do or consumers rely on inaccurate AI-generated recommendations, significant financial losses may follow.

Tax and Financial Software

Consumers increasingly use AI-assisted software to prepare tax returns and manage personal finances.

If defective software produces materially inaccurate information that leads to penalties, interest, or other financial losses, the company behind the product may face legal claims depending on the facts involved.

What Are AI Hallucinations?

An AI hallucination occurs when an artificial intelligence system confidently generates information that is false.

Unlike a simple software malfunction, hallucinations often sound convincing. The system may provide fabricated facts, invented citations, or incorrect advice without indicating that anything is wrong.

Hallucinations have already appeared in:

• Legal research
• Court filings
• Medical information
• Financial advice
• Customer service interactions
• News summaries

When people reasonably rely on false AI-generated information, the consequences can be significant.

Depending on the circumstances, AI hallucinations may support claims involving:

• Product liability
• Negligence
• Negligent misrepresentation
• Fraud
• Defamation
• Consumer protection laws

Whether a legal claim exists depends on the nature of the false information, who relied on it, and the harm that resulted.

Did an AI system contribute to a serious injury, financial loss, employment decision, or other measurable harm? The Lyon Firm investigates AI product liability and negligence claims involving emerging technologies. Call (513) 381-2333 or contact us online for a free, confidential consultation.

What Types of AI Failures May Lead to a Lawsuit?

Every situation is different, but certain types of AI failures are becoming increasingly common.

You may have grounds to pursue legal action if an AI system:

• Contributed to a serious medical injury
• Helped deny medically necessary insurance benefits without meaningful review
• Incorrectly screened or rejected your employment application
• Generated false statements that damaged your reputation
• Produced inaccurate financial or investment information that caused measurable losses
• Improperly froze your bank account or blocked legitimate transactions
• Was marketed with capabilities the technology could not reliably perform
• Failed to include reasonable safety measures despite known risks

Artificial intelligence should improve decision-making, not expose consumers to unnecessary risks. When companies release defective AI products or deploy these systems without appropriate safeguards, injured individuals may have the right to pursue compensation.

Which AI Lawsuits Are Shaping This Area of Law?

Artificial intelligence litigation is developing rapidly. Courts across the country are beginning to address questions that did not exist just a few years ago, including whether AI software can be treated as a product, who may be responsible when automated systems cause harm, and how traditional legal principles apply to emerging technologies.

Several recent cases are helping define the future of AI product liability and negligence litigation.

Garcia v. Character Technologies

One of the first major AI product liability decisions came in Garcia v. Character Technologies.

The lawsuit was filed after a Florida teenager died by suicide following extensive interactions with an AI chatbot. His mother alleged that the chatbot's design encouraged emotionally dependent interactions and failed to include adequate safety measures.

The defendants argued that the chatbot's responses were protected speech and that the claims should be dismissed.

The court disagreed at the pleading stage.

Instead, the judge allowed several product liability claims to move forward, concluding that the allegations focused on the chatbot's design rather than simply the words it generated.

Although the parties later reached a confidential settlement and no court found the defendants liable, the decision remains significant because it demonstrates that AI developers may face traditional product liability claims when plaintiffs challenge how a system was designed.

Estate of Lokken v. UnitedHealth Group

Healthcare has become one of the first industries to face significant AI litigation.

In Estate of Lokken v. UnitedHealth Group, families alleged that an AI system known as nH Predict improperly influenced coverage decisions involving post-acute medical care for Medicare Advantage beneficiaries.

According to the complaint, patients were discharged from skilled nursing facilities earlier than medically appropriate after AI-generated recommendations affected coverage decisions.

The court dismissed some claims while allowing others, including breach of contract and breach of the implied covenant of good faith and fair dealing, to proceed.

The case has also resulted in significant discovery regarding how AI was used during the claims review process.

UnitedHealth denies the allegations and maintains that the software served only as a clinical support tool rather than replacing medical judgment.

For consumers, the case highlights a growing legal question: How much responsibility does a company retain when important healthcare decisions are influenced by artificial intelligence?

Mobley v. Workday

Artificial intelligence is also changing employment decisions.

In Mobley v. Workday, several job applicants allege that Workday's AI-powered hiring tools disproportionately screened out applicants based on age, race, and disability.

Rather than suing individual employers, the plaintiffs brought claims directly against the software company.

The court allowed the case to proceed, concluding that Workday could potentially be treated as an agent of the employers using its hiring platform.

The case is significant because it suggests that AI vendors themselves—not only the businesses using their software—may face liability under certain circumstances.

Workday denies violating employment discrimination laws.

In re: ChatGPT Product Liability Cases

As AI litigation has expanded, courts have also begun consolidating similar lawsuits.

In 2026, a California court coordinated multiple product liability lawsuits involving ChatGPT into a single proceeding.

Although the litigation remains in its early stages, coordinated proceedings often signal that courts expect multiple cases involving similar legal and factual issues.

The outcome may help shape future litigation involving AI products used by millions of consumers.

Why These Cases Matter

Each lawsuit involves different facts, different defendants, and different legal theories.

Together, however, they reflect an important trend.

Courts are increasingly applying established principles of product liability, negligence, consumer protection, contract law, and employment law to artificial intelligence rather than treating AI as a category beyond existing legal rules.

That does not mean every AI-related injury automatically becomes a lawsuit.

It does mean companies developing and deploying AI technology are increasingly being asked to answer for decisions that result in foreseeable harm.

Attorney Insight

"Artificial intelligence doesn't eliminate accountability. Companies still make the decisions to design, test, market, and deploy these systems. When those decisions create unreasonable risks and people are harmed, courts have long recognized that companies can be held responsible."

— Joseph Lyon, The Lyon Firm