Legal Risks of Using AI in Legal Practice: Who Holds the Liability?

Felipe Jimenez
Dec 17
4 min read

Artificial Intelligence (AI) is no longer just a buzzword in the legal industry. Law firms and corporate legal departments are actively adopting AI-powered tools for contract review, legal research, due diligence, discovery, and even drafting. These technologies promise efficiency, cost savings, and enhanced insights.

But with innovation comes new legal and ethical risks. What happens if an AI-powered system produces incorrect results that influence case strategy? Who is responsible if confidential data is mishandled by an AI tool? As courts, regulators, and clients grapple with these questions, the issue of liability is becoming one of the most pressing topics in the profession.

This blog explores the legal risks of using AI in legal practice, the complexities of determining liability, and what firms can do to manage these challenges effectively.

Accuracy and Reliability Risks:

One of the biggest concerns with AI in law is accuracy. Generative AI tools, for instance, are known to sometimes produce “hallucinations” — fabricated citations or case law that appear legitimate but are entirely false.

If an attorney relies on these outputs in a brief or argument, the consequences could be severe:

Case setbacks or sanctions due to presenting inaccurate information.
Reputational damage to the firm.
Client dissatisfaction and potential malpractice claims.

While most law firms are introducing safeguards to verify AI outputs, the ultimate responsibility rests on human professionals. Courts have already ruled that attorneys cannot outsource their ethical and professional duties to machines.

Confidentiality and Data Security Risks:

Lawyers are bound by strict obligations to protect client confidentiality. When using AI platforms — particularly cloud-based ones — sensitive information may be exposed to third parties or stored in ways that violate privacy rules.

Risks include:

Unauthorised data sharing if AI providers train their models on client data.
Cybersecurity vulnerabilities that expose confidential files.
Cross-border compliance issues where data passes through jurisdictions with differing privacy regulations.

If a breach occurs, questions arise: is the liability on the law firm, the AI vendor, or both? In most cases, regulators and bar associations hold firms accountable for ensuring that client data remains secure, even when third-party technology is involved.

Bias and Fairness Risks:

AI systems learn from data, and if that data reflects bias, the outputs may perpetuate or amplify it. For example, an AI tool used for case outcome prediction might overestimate risks for certain demographic groups if historical data is skewed.

If a client suffers harm because biased AI influenced legal strategy, liability could rest with:

The law firm, for failing to ensure responsible use.
The vendor, if the algorithm was negligently designed.
Both parties, depending on contractual agreements and due diligence standards.

This highlights the need for transparency and explainability in AI systems, as well as robust bias-mitigation practices.

Regulatory and Ethical Risks:

Bar associations and regulators are beginning to issue guidance on AI use in legal practice. The American Bar Association (ABA), for instance, has emphasised that lawyers must maintain competence in technology and ensure that AI tools are used responsibly.

If a firm uses AI in a way that violates professional conduct rules, liability may extend to:

Individual attorneys, for breaches of ethical obligations.
The firm, for systemic failures to implement proper oversight.

Failure to comply with emerging regulations could also expose firms to fines, audits, or restrictions on practice.

Contractual Liability with Vendors:

Another key question is the role of AI vendors. If an AI platform produces inaccurate results, can the law firm hold the vendor accountable? The answer depends largely on contract terms.

Many AI providers include disclaimers limiting their liability, often stating that the software is for “informational purposes only” and that users bear ultimate responsibility. Unless firms negotiate stronger protections — such as warranties of accuracy or indemnification clauses — they may find themselves without recourse if the tool fails.

This creates an added burden for firms to carefully vet vendors, negotiate contracts, and ensure that risk allocation is clearly defined.

Who Ultimately Holds the Liability?

When it comes to liability, several stakeholders are involved:

Law firms and attorneys remain primarily responsible for professional duties, accuracy, and confidentiality.
Vendors may hold partial liability, but often limit exposure contractually.
Regulators hold firms accountable, regardless of the tools they use.
Clients may pursue malpractice claims against attorneys if AI misuse causes harm.

In practice, liability often falls most heavily on the lawyer or firm, since the attorney-client relationship is based on trust and professional standards that cannot be delegated to technology.

Mitigating Legal Risks of AI:

While the risks are real, they can be managed through proactive measures:

Human oversight: Always validate AI outputs before using them in legal work.
Vendor due diligence: Carefully assess AI providers for security, transparency, and bias-mitigation practices.
Contractual protections: Negotiate agreements that fairly allocate risk and liability.
Employee training: Ensure attorneys and staff understand AI’s limitations and ethical considerations.
Data governance: Implement strict protocols for managing and protecting client data.

By taking these steps, firms can benefit from AI’s efficiencies while minimising exposure to liability.

AI offers transformative opportunities for the legal profession, from streamlining research to enhancing client services. Yet its adoption raises complex questions of liability that cannot be ignored. While vendors, regulators, and clients all play roles in shaping accountability, the responsibility ultimately rests with lawyers and firms to ensure AI is used ethically, securely, and competently.

The legal industry is entering a new era where technology and human judgment must work hand in hand. Firms that embrace AI responsibly — with proper safeguards, oversight, and training — will not only avoid liability but also gain a competitive edge in delivering modern, efficient, and trustworthy legal services.