What if OpenAI, Anthropic or Google goes down? Questions about 3rd party AI API failure insurance

If your software as a service (SaaS) product relies on OpenAI, Anthropic or Google, a provider outage may still reach your customers. They see an artificial intelligence (AI) feature fail, even when the failure started at the provider's application programming interface (API).

Questions about third party AI API failure insurance may involve more than one policy. Whether insurance may respond depends on what failed, what you promised your customer and how each policy treats outsourced technology.

On 25 July 2026, OpenAI's status page reported "Elevated error rates" across API services, ChatGPT and Codex.

Five upstream failures may reach your customers.

Cover depends on the policy and insurer you choose. Check the policy wording and its terms and conditions for what is and isn't included.

Is there insurance for third party AI API failure?

Third party AI API failure insurance questions commonly lead to two existing products: technology professional indemnity (Tech PI) insurance and cyber insurance (Tech PI explainer).

Technology professional indemnity

Tech PI insurance is designed to cover claims that your advice, service or work caused a client financial loss. It may include legal defence costs, compensation and any settlement you are legally liable to pay, subject to the policy terms.

upcover's AI startup insurance guide says cover may turn on how the policy treats supplier failure when a third party foundation model is the cause.

Cyber insurance and business interruption

Cyber insurance is designed to cover costs after a data breach or cyber attack. First-party costs may include incident response, forensics, notifying affected people, data recovery and business interruption.

The business interruption section of a cyber insurance policy relates to your own losses. upcover's cyber page says cover may include "lost income and extra costs if your systems are interrupted by a covered incident, after the waiting period."

upcover's glossary defines a related term, contingent business interruption loss: "This is loss caused when a third party, such as a vendor or service provider, is disrupted. That disruption then stops the insured from operating normally."

Whether a cyber policy treats an AI provider as an outsourced service provider varies between policy wordings, so always check with your insurance broker or the team at upcover.

What do tech professional indemnity and cyber insurance commonly exclude?

Tech PI commonly excludes contract-only liability such as service credits. Cyber insurance commonly excludes some third party outages.

Technology professional indemnity

Exclusions commonly include, but are not limited to:

• service credits, liquidated damages and other liability you take on under a contract that would not otherwise exist under the law (contractual liability exclusion)
• claims and circumstances you knew about before the policy started
• refunds, or the cost of redoing, correcting or improving your own work

Cyber insurance

Exclusions commonly include, but are not limited to:

• outages from third party utilities or telecoms, unless the provider's downtime is directly caused by its own security failure (cyber insurance page)
• incidents known or reasonably foreseeable by a senior executive before cover starts
• patent or trade secret infringement claims, although an exception may apply to some software copyright claims

Important: These lists are not exhaustive. Exclusions vary between insurers. Always refer to the policy wording and its terms and conditions for the exclusions that apply to you, and if you have questions you should speak to your insurance broker or the upcover team.

Is an upstream outage the same as your own software error?

Upstream outages, your own errors, cyber incidents and incorrect AI outputs are different causes of loss that policies may treat differently.

• An upstream outage starts at the provider, so the cover to assess may depend on its cause and your contract.
• Your own coding or configuration error may be relevant to Tech PI if a customer alleges financial loss.
• A cyber incident at your business or the provider may be relevant to cyber insurance, depending on the wording.
• An incorrect AI output your product passes on may be relevant to Tech PI, depending on what the customer alleges.

Whether Tech PI, cyber insurance or both may respond depends on what the customer alleges, the policy wording and the insurer's assessment.

What did your AI provider promise and what did you promise customers?

Provider commitments vary by product and tier, from a service level agreement (SLA) with service credits as the remedy to no published uptime commitment at all. Your customer contract may promise more than your provider promises you.

Three things are worth checking in your provider's current terms: whether your tier carries an SLA, what remedy the SLA gives you if the provider misses it, and whether that remedy is the only one available. The same terms set what rights you hold in outputs and any intellectual property indemnity (AI copyright guide). Providers revise these documents often, so keep a dated copy of the version you contracted under.

Your customer generally has no contract with the model provider, so a claim about the disruption may come to you. Enterprise customers may also require specific insurance policies and minimum limits before signing. Our guide to SaaS enterprise insurance requirements explains what to check in a customer's insurance schedule.

Our guides to SLA breaches and downtime and breach of contract explain more.

Which resilience controls may reduce AI provider dependency risk?

Multi-provider fallback, retries, graceful degradation, monitoring, incident response, customer communications and a dependency inventory may reduce how often an upstream failure reaches a customer.

How upcover can help

upcover arranges Tech PI and cyber insurance for AI and SaaS businesses. upcover works with 80+ insurance partners and can arrange quotes from a range of insurers.

• 70,000+ businesses covered across Australia
• 4.9/5 customer rating
• 80+ insurance partners

Get a quote for your AI business.

Frequently asked questions

Does Tech PI or cyber insurance cover an OpenAI outage?

Third party AI API failure insurance questions may involve Tech PI, cyber insurance or neither.

Is an AI API outage business interruption?

Whether an AI API outage falls within the business interruption section of a cyber insurance policy depends on its cause and the policy wording.

What is dependent business interruption in a cyber policy?

upcover's glossary defines the related term dependent service interruption as "Disruption experienced by the insured due to failure at a service provider or third-party dependency." Whether a cyber policy includes dependent service interruption varies between policy wordings, so always check with your insurance broker or the team at upcover.

Who is liable to the customer when a third party AI provider fails?

Whether you are legally liable may depend on your contract and the failure's cause, so get legal advice. Our AI agent liability guide looks at liability when an AI system acts for you.

‍

_{Written by upcover's editorial team. This article provides general information only and does not take into account your objectives, financial situation or needs. It is not legal advice; get legal advice about your customer contracts and your AI provider's terms. Provider terms change, so read the current version of your provider's terms and SLA. Insurance availability and cover are subject to underwriting and the terms, conditions, limits and exclusions of the relevant policy. Read the policy wording and its terms and conditions before deciding. upcover arranges insurance products with selected insurers and underwriters and does not compare all general insurers or insurance products available in the market.}