Who is liable if an AI tool provides false information?

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Determining legal liability when an artificial intelligence platform provides false or inaccurate information (commonly referred to as an AI "hallucination") is a rapidly evolving issue in commercial law. Rather than attaching liability to the AI tool itself (which is not recognized as an independent legal entity) responsibility falls on the human actors, businesses, software vendors, or professional end-users who deploy, license, or publish the automated output. Under Canadian law, allocating liability depends heavily on the relationship between the parties, contractual disclaimers, and the applicable legal framework.

Key Legal Insights and Perspectives

1. Business Entity and Customer-Facing Liability (Negligent Misrepresentation)

When a business deploys a customer-facing chatbot or automated service tool, the business is generally held legally responsible for representations made by that system:

  • Principal-Agent Principles: Canadian courts have affirmed that a company cannot disclaim responsibility for its own automated systems by claiming the AI operates independently. In the landmark decision Moffatt v. Air Canada, the court held that a business remains liable under negligent misrepresentation when its website chatbot provides incorrect information to a consumer who relies on it to their detriment.
  • Duty of Care: Organizations owe a duty of care to ensure that automated tools accessible by consumers transmit accurate data, particularly regarding pricing, refund policies, or contractual terms.

2. Software Vendors vs. Enterprise Users (Contractual Disclaimers)

When an enterprise licenses an AI tool from a third-party software developer, liability between the developer and the enterprise client is primarily controlled by contract:

  • "As-Is" Warranties and Liability Caps: Commercial AI Terms of Service typically disclaim all implied warranties regarding accuracy and explicitly state that output is provided "as-is" without guarantee. Software vendors regularly shift the risk to the enterprise user, requiring the licensee to verify all AI-generated data before operational deployment.
  • Indemnification Clauses: Unless an enterprise user successfully negotiates custom indemnification terms, vendor contracts generally shield the AI developer from third-party claims resulting from erroneous outputs or hallucinations.

3. Professional Negligence and Duty of Verification

For professionals (such as lawyers, engineers, accountants, and healthcare providers) relying on AI-generated research or automated calculations carries strict professional obligations:

  • Personal Responsibility to Verify: Professional regulatory bodies and Canadian courts have established that professionals bear ultimate personal responsibility for work submitted under their name. In cases such as Zhang v. Chen and subsequent court directives, submitting fake AI-generated case citations or inaccurate technical summaries has resulted in judicial reprimands, cost sanctions, and professional discipline.
  • Standard of Care: Using AI tools as a shortcut without independent human verification constitutes a breach of the required professional standard of care, exposing the practitioner to professional negligence claims.

4. Product Liability and Negligent Design Torts

Where AI tools are integrated into physical systems or safety-critical software, civil tort law principles apply:

  • Negligent Design or Failure to Warn: If an AI developer creates a specialized model designed for high-risk applications (e.g., medical diagnostics, financial trading, or autonomous navigation) without adequate guardrails or warnings regarding error rates, claims can arise under product liability or negligent design frameworks.
  • Causation Challenges: Establishing liability in complex AI systems often presents evidentiary hurdles in proving whether a failure stemmed from flawed training data, algorithmic design, software integration, or improper user inputs.

For Artificial Intelligence (AI), technology and Internet business legal matters, contact our law firm to schedule a confidential initial consultation at 403-400-4092 [Calgary, Alberta], 905-616-8864 [Greater Toronto Area] or Chris@NeufeldLegal.com.

Selected Sources & References

AI Law - Introduction