As artificial intelligence continues to push boundaries in creativity, a new controversy is forcing businesses to confront legal blind spots in their risk strategies.
Over the weekend, AI-generated artwork mimicking the distinct animation style of Studio Ghibli circulated widely online - drawing criticism for what many called clear-cut intellectual property infringement. The images, created with OpenAI’s ChatGPT and DALL·E, resemble the work of Japanese animator Hayao Miyazaki, a household name in global animation thanks to films like Spirited Away and Howl’s Moving Castle.
For Levi Smith, commercial account executive at Cornerstone Insurance Services in Saskatchewan, the implications are immediate and serious.
“I hate to be that guy, of course, sounding like a broken record, but AI and the risk around that is going to be massive,” Smith said. “It’s really pushing the pedal to the floor on cyber risk as well, and how that’s affecting companies.”
Smith, whose clients include firms in engineering and custom manufacturing, said the threat of IP theft is no longer theoretical. “Companies that design products from scratch for their clients are going to be in an interesting place in the next few years - or even the next few weeks - depending on how knowledgeable their competitors are with their use of AI,” he said.
He noted that while Saskatchewan may lag behind Ontario or British Columbia in responding to these shifts, that’s no excuse for inaction. “It is still important to be aware of what’s happening in those neighbour provinces and bring those risks over to your clients here, so that way they’re ahead of them,” Smith said.
Though IP infringement using AI tools isn’t new, Smith believes its growing traction online is a sign of rising risk. “This stuff isn’t just playing around online anymore. It’s beginning to cross over into real liability territory,” he added.
The use of large datasets to train AI models, including content scraped from the internet, has sparked growing concerns about intellectual property (IP) infringement. In response, a small but expanding group of Canadian insurers are now offering policies designed to help businesses manage the legal and financial risks that come with AI-related innovation.
“Intellectual property risk is a very real but often uninsured exposure that can disproportionately impact small and medium enterprises,” said CFC Underwriting, a specialist insurer that offers coverage in Canada. The firm provides policies that cover both the defence and enforcement of IP rights, including against claims related to AI technologies.
The stakes are rising. As generative AI tools become more accessible and integrated into daily business functions - from writing and coding to product design - the potential for inadvertent infringement increases. That exposure is not just theoretical. In the United States, companies like OpenAI and GitHub have already faced lawsuits from artists and software developers alleging that their work was used without permission to train commercial AI systems.
According to legal experts at Torys LLP, Canadian businesses are unlikely to remain insulated. “Intellectual property-related claims, such as the unlicensed use of copyrighted material to train AI systems, are already giving rise to class actions,” the firm noted in a recent publication on AI liability.
At its core, IP insurance helps protect companies from the legal costs of either defending against infringement claims or pursuing others who have infringed on their rights. This includes coverage for copyright, trademark, patent, and trade secret issues—each of which may be implicated in AI development or deployment.
Policies typically fall into three categories:
In Canada, providers such as CFC Underwriting and SUM Insurance have begun tailoring their products to reflect the realities of AI risk. SUM’s IP policies are designed specifically for Canadian small and medium-sized enterprises and cover the complex and costly legal process of managing IP disputes. “Most small to medium-sized companies in Canada remain exposed to IP risks,” the company stated in its latest brochure.
Despite its importance, IP insurance remains a niche product in Canada, with low penetration outside of high-tech and manufacturing sectors. Brokers say the complexity of coverage and relatively low awareness have limited uptake, even among companies most vulnerable to AI-related risks.
But that may be changing.
As Canada develops a national regulatory framework for AI, and as international case law on generative AI continues to evolve, legal exposure is likely to increase. In the absence of clear legislation—Bill C-27, which includes the Artificial Intelligence and Data Act (AIDA), remains in legislative limbo—insurance may offer a critical stopgap for tech firms and startups seeking to protect their innovations.
“Innovation and liability are now two sides of the same coin,” said a broker who advises Toronto-based AI startups. “If you’re building with AI, you need to assume that somewhere down the line, a rights-holder may come knocking.”
