Daniel Schwarcz (University of Minnesota Law School) has posted Distributing Risk in an Age of AI: Procedural Bad Faith and AI Claims Handling on SSRN. Here is the abstract:
Written in honor of Kenneth Abraham and his foundational contributions to insurance law, this Essay argues that the rise of AI-driven insurance claims handling exposes a significant gap in first-party bad faith law. Traditional bad faith doctrine has focused primarily on outcomes, asking whether an insurer wrongfully denied or delayed payment of benefits owed under the policy. But increasingly automated claims processes create a distinct procedural injury when insurers deny, reduce, or delay claims without meaningful human review, adequate explanation, or a genuine opportunity for the insured to be heard. Drawing on procedural justice theory, the Essay shows that such practices can undermine voice, dignity, neutrality, and trustworthiness in a relationship defined by vulnerability and dependence. It therefore argues that courts should give procedural fairness substantially greater weight within the bad faith inquiry and should treat heavily automated claims denials without meaningful human oversight as powerful evidence of procedural bad faith. Doing so would adapt bad faith law to the distinctive risks posed by AI while preserving insurance’s core promise of fair, respectful, and accountable claims resolution.
Highly Recommended!
For a discussion of procedural justice, see my article Procedural Justice.
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