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Legal Ramifications of AI

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June 19, 2023
Legal Corner
Jade Davis

Artificial Intelligence (AI) and the robotics revolution have been slowly transforming the hospitality industry for years. However, as AI continues to barrel past our norms as we know them, the hospitality industry must balance the benefits of new technologies with the legal and ethical challenges they present.

Along with enhanced guest experiences through personalized and automated services, the industry has adopted AI for marketing, forecasting inventory needs, allocating rooms and resources according to guest value, preventative maintenance, predicting customer preferences, and management system enhancement, to name a few. AI has unearthed automation beyond contemplation, yet it challenges an industry centered on service with decreased human interactions, lack of flexibility, bias, security incidents, privacy breaches, and software errors. Mindful advancement is needed to ensure these technologies manage legal liability appropriately.

The Root of All Disputes is Misunderstanding.

Empathy provides flexibility. One of the most critical setbacks of AI is its need for more flexibility. Not even the most direct interaction or step is foolproof in the hospitality/service industry. Innately AI systems are programmed to operate within a specific set of rules and algorithms. Over time, to provide comprehensive services, sub-rules have been programmed to rules, and options have been added to create a vastly more complicated decision/ action map. Yet these rigid systems still fail when greater flexibility – humanism – is needed.

Unfortunately, service is a continuum that ebbs, flows and bends to the consumer's satisfaction. Often, the most logical and sound decision may not make an unusual consumer happy; therefore, there is much growth required for AI systems to make. No matter how many rules one can imagine, sometimes guests may still leave unsatisfied despite the AI system's best intentions. This circumstance isn't specific to service but also to operate in a legally friendly and business-forward model. As a result, minor misunderstandings often build and lead to the most significant disputes.


Programming Biases

Another issue engineers and developers are working on relates to bias and discrimination. Unfortunately, minimizing bias and inaccuracy is only as strong as the diversity of a team because AI algorithms are created and programmed by humans, making them susceptible to inherent bias. Diversity in this regard is far broader than race—it penetrates every aspect of our culture and world to be able to provide service and expectations consumers and employees expect. The latest development that has now transcended these concerns is biometric data use. Globally, data authorities have promised to investigate and sanction organizations that fail to act responsibly when deploying biometric and emotional analysis technologies.

Guest and Employee Privacy

Privacy concerns are another critical issue that will soon cripple this industry if not addressed appropriately. Big data is one of the foundations of the deployment of AI. In the hospitality industry, data typically consists of a guest's interaction with the hotel website before the trip and his/her behavior in the hotel. For the industry to achieve the optimization and automation available, it must partner with other businesses to complement the data it has to obtain information on its guests' profile, their interests and preferences, spending behavior, preferred destinations, and their behavior outside the hotel in order to make their experience inside incomparable.

Partnership and growth have propelled the hospitality industry to success. However, the same data we rely on to train and improve algorithms, if not collected, stored, used, transferred, and retained in accordance with applicable federal, state, and international privacy laws and regulations, a mountain of success will easily crumble. Recent incidents have also shown that confidential personal information input into an AI system will no longer remain confidential and protected and will be subject to the AI system's most current terms of use/service or hackers to expose on the dark web. Unauthorized access to guest data may result in legal issues no matter what industry or purpose. Unsurprisingly, when incidents occur, businesses instantly require limitation of liability, data security, and confidentiality provisions reviewed and interpreted to ascertain exposure. Industry stakeholders must have robust data protection policies to avoid databreaches and maintain customer trust.

Will AI Implications Remain Insurable?

There is neither empirical data nor theoretical models to estimate AI risk's potential liability and magnitude. AI knows no geographical boundaries, and it isn't independent. These factors alone render it difficult for AI to maintain insurability. If and when insurers pull back, the domino effect could cripple the industry. Therefore, these risks must be analyzed in more depth now rather than later.

Historically, insurance companies have been at the forefront regarding the detection and mitigation of risk. But to do so, insurers must understand the risks companies face and how to price insurance products that would protect people from these developments.


AI in the hospitality industry enhances guest experiences, streamlines operations, and provides efficiency in service delivery. However, these benefits must be balanced with legal, financial, and ethical concerns. If the approach is steady and mindful, continued adoption of AI should be positive. If not, the liability will be exponential.


Jade Davis, Esq. is of Counsel with Hall Booth Smith, P.C.

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