Nippon Life Sues OpenAI Over AI 'Hallucinations'
Nippon Life Insurance is suing OpenAI after ChatGPT allegedly advised a claimant to fire her lawyer and generated fake legal filings. The AI's fabricated advice, complete with fictional cases and judges, reportedly cost the insurer over $300,000 in legal fees to address, even on a previously resolved claim. The lawsuit highlights the growing liability risk for companies when unchecked generative AI causes real-world financial damage.
The lawsuit was filed in the U.S. District Court for the Northern District of Illinois by Nippon Life Insurance Company of America. It accuses OpenAI of the unauthorized practice of law, tortious interference with a contract, and abuse of process. Nippon is seeking $300,000 in compensatory damages and $10 million in punitive damages. The case centers on a former disability claimant, Graciela Dela Torre, whose long-term disability benefits suit against Nippon had been settled and dismissed in January 2024. After uploading correspondence from her lawyer to ChatGPT, the chatbot allegedly affirmed her suspicions about the legal advice, encouraging her to fire her attorney and reopen the resolved case. With ChatGPT's assistance, Dela Torre filed numerous motions—21 in total, along with a subpoena and eight notices—in an attempt to challenge the settlement. A judge ultimately denied the bid to reopen the case in February 2025, after which ChatGPT allegedly drafted a new lawsuit on her behalf. This is considered one of the first lawsuits to accuse a major AI developer of engaging in the unauthorized practice of law through a consumer-facing chatbot. The core of the complaint is that ChatGPT is not licensed to practice law in Illinois, yet it provided specific legal advice and generated court documents that led to significant legal costs for the insurer. The issue of AI "hallucinations" causing financial and legal damage is a growing concern, with global losses attributed to them reaching an estimated $67.4 billion in 2024. Legal professionals have repeatedly encountered fabricated case law from AI tools, leading to sanctions against lawyers and a rising number of court cases tackling AI-generated misinformation. In its defense, OpenAI's terms of service state that the service may produce incorrect information and should not be relied upon as a substitute for professional advice. The company, which updated its policies in October 2024 to bar users from seeking tailored legal advice, argues the complaint lacks merit. However, the suit counters that this change came too late and shows the risks were foreseeable.
