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 March 31, 2026 at 11:17 PM

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.

This premium content is locked for Cybersecurity Law & Strategy subscribers only

ENJOY UNLIMITED ACCESS TO THE SINGLE SOURCE OF OBJECTIVE LEGAL ANALYSIS, PRACTICAL INSIGHTS, AND NEWS IN Cybersecurity Law & Strategy

Stay current on the latest information, rulings, regulations, and trends
Includes practical, must-have information on copyrights, royalties, AI, and more
Tap into expert guidance from top entertainment lawyers and experts

Subscribe Now

Already have an account? Sign In Now

For enterprise-wide or corporate access, please contact Customer Service at [email protected] or call 1-877-256-2473.

NOT FOR REPRINT

Continue Reading

Entrepreneurship Is Already Hard: Rising Above Extraordinary Personal Crises to Build an Award-Winning Professional Reputation

Entrepreneurship. It has such a romantic ring, doesn’t it? When we hear the word, we think of incredibly successful people who must lead a charmed life. But the truth of the matter is often far from that. Just ask Melissa Rogozinski whose recent book, Becoming Phoenix, tells a much different story.

July 31, 2026

Applying the Zero Trust Model to Manage Risks of Agentic AI

Agentic AI introduces risks that are novel and complex, but the most effective response is a familiar one. Zero Trust answers the problem of when an AI agent misfires on its own by constraining what an agent can do rather than betting on how it will behave.

July 31, 2026

California’s AI Transparency Stack: From State Obligation to Adoption Strategy

California is betting that it can accelerate AI adoption by acting as a demanding, trusted buyer, and that the governance evidence it extracts through procurement can become infrastructure the rest of the market reuses.

July 31, 2026

How to Prevent Your Outsourcing or Managed Services Engagement from Failing

The outsourcing of office and administrative services is expected to grow 50%-60% in the next five years. Contrary to what decision-makers think, and what the service providers hope you think, the biggest risk in outsourcing isn't choosing the wrong provider. It's outsourcing the wrong process, under the wrong model, with the wrong performance measures and contract terms.

July 31, 2026

Advertise with Us Customer Support Terms of Service