In WTW’s 2024/2025 Global Directors’ and Officers’ Survey Report, North American respondents did not place directors and officers (D&O) insurance for activist shareholder matters among their top concerns. Given the rising volume, cost and scope of shareholder activism, it may be that many corporate officers are simply unaware of the important role D&O insurance can play in combating this risk. With the right policy language, insureds can seek protection and reimbursement for costs from these activist risks under their D&O policy, whether through crisis management coverage or entity coverage.
In order to appreciate the increasing exposure that public companies face from activist shareholders, it should be noted that U.S. shareholder activism was up 6% year-over-year to 115 campaigns, according to Barclays. Mega-cap companies with over $25 billion market capitalization, comprised 30% of their targets, up from 23% five years ago. The Barclays report also noted that “[a] record 27 CEOs resigned from companies targeted by activists in 2024, up from 24 in 2023 and well above the four-year average of 16. The percentage of S&P 500 CEO resignations coming in the context of activist activity has also increased threefold since 2020.” However, when it came to seeking board seats, U.S. activists had only limited success in 2024, securing seats in only three out of ten 2024 proxy fights. As M&A activity returns, Barclays expects M&A-related demands to increase.
One reason for the increased volume appears to be anti-ESG and anti-DEI activism. According to the Conference Board’s article “New Policy Landscape Turbocharges DEI & ESG Activism in 2025 Proxy Season,” while pro-ESG proposals have been “losing momentum,” the “number of anti-ESG proposals filed more than quadrupled in recent years, from 23 in 2021 to 112 in 2024.” In 2025, “[a] fifth of shareholder proposals filed as of February came from anti-ESG groups.” The article also stated that “[i]nvestor focus is shifting away from E & S [Environmental and Social] issues toward governance topics—such as executive pay.”
The first place to look is crisis response coverage now standard in many D&O policies. This often overlooked provision can help pay for public relations specialists, crisis management firms and even legal counsel (thereby, so the thinking goes, avoiding potential securities class actions down the road). Many insurers now specifically include activism as a covered peril, though policy wording is not uniform. For example, some insurers tie coverage to a requirement for an unrealistically large stock drop, effectively gutting the provision and/or rendering it unnecessary because such a large stock drop will generally result in a securities class action which triggers coverage. Others will provide cover subject to no retention, but sub-limited well below the total available limits. Working with your broker, these limitations can often be overcome or worked around (including potentially by stacking up sub-limits throughout the tower, as is sometimes done with other sub-limits such as derivative demand/books and records) during placement.
The second place to look is in the insuring agreements themselves. For the vast majority of activist campaigns that stop somewhere short of litigation, triggering coverage will often depend on the factual particulars of the activist’s campaign or overtures. While there is an element of coverage in a standard public company D&O policy, the unique attributes of activist campaigns can create coverage issues. Take, for example, the all too common scenario whereby an activist directs a letter to the company (via the board). A typical entity insuring agreement (Side C cover) in most D&O policies, which provides insurance coverage for the company itself, is normally limited to “securities claims,” often defined as:
The issue here is that many activist letters do not allege violations of securities laws. More typically, an activist will allege that the target company has underperformed financially due to some sort of mismanagement of the business itself. It may be possible to secure policy language that broadens the definition of a “securities claim” as any “claim” brought by a security holder, but the matter will still have to meet the threshold definitional requirements of a “claim.”
Policies often define a “claim” as a “written demand for monetary damages or nonmonetary relief.” It may be the case that an activist letter, unlike the example above, is directed at individual members of the management team and even alleges negligence on their part. If the letter demands monetary damages or nonmonetary relief, then the individual officers receiving the letter should be entitled to coverage. However, insurers have been known to take the position that an activist letter falls short of “demanding” action, concluding instead that the letter merely “suggests” a course of conduct.
Insurers have also argued that an activist’s call to change management or sell a profitable subsidiary does not constitute a call for “nonmonetary relief” as anticipated by the policy. In the face of such arguments, an insurer and its broker may have success in arguing that that the facts are subject to interpretation and that the policy is ambiguous and should be read in favor of the insured.
The foregoing are merely some examples of the issues that can arise under D&O policies when attempting to secure coverage for shareholder activism. Many other pitfalls exist in the areas of reporting, related claim aggregation, policy definitions (including “loss”) and even policy exclusions. Fortunately, options now exist. Offered by many insurance markets, some of these coverage enhancements offer real improvements, while others offer limited or even illusory benefits.
One positive example is the “activist shareholder extension” provided by at least one domestic carrier, which amends the definition of “securities claim” to include any “claim” brought by
In our entity example above, this language could help overcome the threshold issue as to whether or not a “securities claim” was asserted against the company. Note that some versions of this endorsement merely redefine “claim” as opposed to “securities claim” and so may not accomplish the granting of entity coverage. We have seen other policies and endorsements which merely add the phrase “including activist shareholders” to their definitions of “securities claims,” which does nothing to address the common requirements that violations of securities laws must be alleged.
Note that many endorsements which add activist shareholder coverage have limitations, such as substantial retentions or sub-limits. Some carriers combine activist shareholder sub-limits with derivative demand and/or books and record demand response sub-limits. When such coverages are combined, it is important to seek more than the standard $250,000 sub-limit.
Other options exist in today’s insurance market, though language and applicability to your particular needs require careful consideration. As always, care must be taken to avoid “coverage enhancements” which, in reality, strip coverage away and return only a small portion of it to you.
Finally, in the event an activist campaign was to devolve into litigation — a rare but not unheard of occurrence — companies should immediately look to D&O insurance as a potential source of funding. However, insureds should be aware of the possibility that an insurer might attempt to deny coverage based on late claim reporting. With the shoe now on the other foot, an insurer could argue that an activist’s initial demand was, in fact, a “claim,” and that notice of the lawsuit was late and not in conformity with the policy’s notice provision. This situation can best be avoided by reporting activist overtures to your insurer when they’re first made; this may prevent late-notice issues and may result in coverage at the early stages. Pre-claim mitigation costs, which help companies avoid a claim from ever being made, may also be available and of possible utility here.
All told, the best advice is simple enough: it is well worth your while to work with a knowledgeable broker to address the exposures and coverage issues arising from shareholder activism. The best approach starts with knowing which insurers offer the most favorable language on the subject and then seeking to craft any desired bespoke improvements to address your organization’s specific needs. Your broker should also know which insurers provide the best claim service and will stand by to assist you with obtaining the full benefit of the promised coverage.
WTW hopes you found the general information provided here informative and helpful. The information contained herein is not intended to constitute legal or other professional advice and should not be relied upon in lieu of consultation with your own legal advisors. In the event you would like more information regarding your insurance coverage, please do not hesitate to reach out to us. In North America, WTW offers insurance products through licensed entities, including Willis Towers Watson Northeast, Inc. (in the United States) and Willis Canada Inc. (in Canada).
