When AI Gets It Wrong: Managing the Legal Risk of Hallucinations in Business Decision-Making

The use of AI does not alter fundamental obligations of accuracy, reasonableness and accountability. The legal risk lies not in the existence of hallucinations but in the failure to govern and verify them.

8 minute read April 01, 2026 at 12:17 AM

Kevin Szczepanski

When AI Gets It Wrong: Managing the Legal Risk of Hallucinations in Business Decision-Making

In the past year, courts have sanctioned lawyers for citing nonexistent cases generated by artificial intelligence, regulators have warned companies about unsubstantiated artificial intelligence-driven claims, and businesses have begun quietly absorbing losses tied to AI-assisted decision-making.

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