Directors and officers (D&O) liability: A look ahead to 2026

Directors and officers (D&O) liability: A look ahead to 2026

For D&O liability insurance, 2025 was a year of market transition. While markets remained competitive, the abundance of capacity that had been persistent for the past several years was somewhat more constricted, creating pressures toward rate stabilization. Reductions remained available for many insureds, but most renewal outcomes were flat for stable risk profiles.

Looking ahead to 2026, insureds may see premium stabilization give way to flat-to-modest increases amid broader economic and market-specific pressures. Inflation, slower economic growth, rising unemployment, geopolitical risks and uncertainties around AI, among other factors, could create a more suitable environment for modest rate adjustments. This is not to suggest that universal premium increases are imminent or inevitable. Reductions may still be available on a case-by-case basis. Differences in renewal results may depend, in part, on prior renewal results and the need for risk-specific premium correction.

Our outlook for the coming year does not focus entirely on rate predictions. In this regard, we continue to believe in “driving value in a stable environment.” To the extent insurers are less agreeable to more favorable pricing, they should be pressed to differentiate their offerings with other areas of value, such as enhanced coverage and tightened exclusions – entity investigations costs coverage, broadened definitions of “Insured Person,” and narrower exclusion lead-ins are just a few examples. With advancements that Willis has achieved in coverage analytical modeling, several additional areas of policy and program improvements are possible.

D&O claim trends and securities litigation outlook for 2026

In 2025, there was an 11% decrease in securities class action (SCA) filings – 207 in 2025 vs. 232 in 2024. Although the average SCA settlement in 2025 ($40 million) was 9% lower year-on-year, the median settlement of $17 million was notably 21% higher than the prior year. Nevertheless, the aggregate recovery from settlements last year reflected an overall decrease of 11% – $2.9 billion in 2025 vs. $3.9 billion in 2024, adjusted for inflation.

The Securities and Exchange Commission (SEC) initiated 56 enforcement actions against public companies in FY 2025 (October 1 to September 30). This represented a 30% decrease year-on-year. Importantly, only four of those proceedings were initiated in the new presidential administration. Total monetary settlements in FY 2025 were $808 million, the lowest since FY 2012, and less than half of the FY 2016–FY 2024 average monetary settlement of $1.9 billion.

Despite a dip in SEC enforcement filings and recoveries, overall claim trends are not likely to have a material impact on market conditions in 2026. Specifically, we caution that settlement and recovery sums in any given year are not generally reflective of current D&O conditions. They are lagging indicators, often more accurately revealing facts specific to cases filed in previous years and without reference to the amount of D&O insurance used to resolve the matters. This last point is especially true with enforcement actions, where D&O coverage for corporate entities, and for fines and penalties on a broader basis, may be more restricted.

Macro-economic factors shaping D&O risk and liability exposure

In 2025, the U.S. economy saw stock indices hit record highs and interest rates begin to lower. In contrast, the economy experienced slower growth, stubborn inflation and weakening job creation, all amid often fast-changing domestic policies and hostilities abroad. Into 2026, these and other changes are likely to create difficult to predict crosscurrents that may heighten corporate risk profiles and scrutiny around disclosures and corporate governance. In 2025, we wrote about the potential impact that tariffs and government funding cuts may have on D&O risk.

Rising bankruptcy and insolvency risk: Implications for D&O insurance

Business bankruptcy filings totaling 23,043 through June 30, 2025 reflected a 4.5% increase year-on-year, having now eclipsed the number of filings in the pandemic year of 2020 (22,482). Chapter 11 filings through June 2025 (8,408), in particular, were 11% greater than in 2020 (7,568). We will continue to monitor these developments in the new year, as bankruptcy claims can impact both private and public companies and can be among the most severe. Bankruptcy-focused D&O coverage specialization is essential in times of uncertainty. Companies with any inkling of upcoming issues should reach out sooner than later (but it’s never too late) to specialized D&O brokerage distressed risk teams.

Artificial intelligence (AI) as a D&O risk

From a D&O risk perspective, AI’s use in corporate decision making raises questions about the adequacy of oversight and due diligence. Investor disclosures regarding the use, scope and limitations of AI also present potential risk, particularly where accuracy or completeness is lacking.

AI-focused legislation is increasing compliance and governance obligations. The European Union’s AI Act, along with similar U.S. state-level laws, impose requirements related to bias, data transparency and ethical use. Noncompliance may result in regulatory scrutiny and litigation.

The SEC has brought AI-related enforcement actions, including settlements with investment advisory firms over alleged “AI washing,” involving overstated or misleading claims about AI capabilities or integration. Additional actions have followed, including cases against QZ Asset Management Ltd. and its CEO, the former CEO of Nate, Inc., and Rimar Capital entities and their owner, resulting in a settlement.

Beyond SEC activity, shareholders filed 53 AI-related SCAs through H1 2025, asserting allegations relating to misrepresentations about the role of AI in business operations. In a study we released in November, we found that, although AI-related securities litigation has been on the rise, it follows typical patterns, with no major shifts in outcomes.

In 2026, there is little doubt AI will remain a dominant force in the board room and in corporate operations. We expect AI-related SCAs may increase in frequency, but there is little evidence at this point to suggest a corresponding upsurge in severity.

Changes in state corporate laws to attract re-incorporation outside Delaware

For many years, Nevada has attempted to lure corporations to the state with advantages such as no corporate income tax and a codified business judgment rule and exculpation statute that are arguably broader than those protections afforded in Delaware.

In February 2025, Nevada adopted a joint resolution to amend the state constitution to permit the legislature to create a business court to steer securities litigation to specialized judges. Most recently, in May 2025, the state adopted legislation modifying code provisions relating to jury trial waivers and controlling shareholder duty limitations.

Not to be outdone, Texas adopted reforms in May that include creation of a business court system dedicated to securities litigation, establishment of minimum ownership requirements as a prerequisite to bringing derivative litigation, prohibition of fee recoveries for plaintiff counsel when bringing suits seeking only enhanced corporate disclosures and codification of a business judgment rule purportedly broader than Delaware’s.

To mitigate the risk of companies re-incorporating elsewhere, Delaware adopted Senate Bill 21 (SB 21) in March 2025, lessening stockholders’ rights relative to claims involving controlling stockholders, particularly as they relate to conflicted transactions. Similar to reforms adopted in Texas, Delaware also restricted the scope of documents available to shareholders with respect to statutory books and records demands. See our article on the subject: Changes in Delaware corporate law: A D&O liability and insurance perspective.

The moves by Nevada, Texas and Delaware have triggered a high profile discussion of the pros and cons of leaving Delaware for possibly friendlier territory out west. See, for example, Andreeson Horowitz’s “We're Leaving Delaware, And We Think You Should Consider Leaving Too,” and a responsive article “Why Andreessen Horowitz's exit from Delaware misses the big picture.”

Interestingly, as the Delaware legislature attempts to ensure the state remains a hospitable corporate home, its supreme court issued a decision in February arguably making it easier for companies to re-incorporate elsewhere. In the closely watched case of Maffei v. Palkon, the Delaware Supreme Court held that the company’s reincorporation from Delaware to Nevada is subject to review under the deferential business judgment rule, not the more rigorous “entire fairness standard.”

Looking ahead to 2026, we anticipate D&O insurers will proceed cautiously and not assume that corporations will experience diminished D&O risk inside or outside Delaware, or that D&O insurance premiums will decrease as a result. Nevertheless, the dynamic is fluid and, on a case-by-case basis, there may be sensible justification for corporations in either state to present themselves to insurance markets at renewal as more favorable risks than before.

IPO activity trends and D&O insurance considerations

U.S. initial public offering (IPO) filings in the first half of 2025 (104 filings) were up 21% over the second half of 2024 (86). The uptick occurred despite headwinds of inflation, market volatility, interest rate and trade policy concerns. The D&O insurance market for IPOs and de-SPAC transactions remains competitive, but as with the broader marketplace, it is moderating in general. Pricing is often dependent on company-specific risk factors, including financial strength and industry.

Coverage itself continues to broadly encompass offering-related acts, including pre-transaction promotional acts. Additionally, as has been the case in the market for quite some time, issuers may be able to extend the coverage to third parties, including underwriters, advisors, shareholders and others to whom the issuer may owe indemnity. Such coverage extensions can have downsides; however, and the adequacy of the wording is crucial. As always, issuers should work with their brokers and their IPO and SPAC risk specialists to achieve the most desirable coverage for their particular risks.

In September 2025, the SEC issued a press release and policy statement that removed impediments to companies inserting mandatory arbitration provisions into various corporate documents in advance of public offerings of stock. Is the SEC inviting companies to require arbitration in registration statements? See our discussion of the subject, including some of the legal, investor and insurance implications that we anticipate.

Continuation of the Trump administration’s lighter regulatory approach

In 2025, the SEC narrowed its enforcement focus and increased presidential oversight, limiting investigations in certain areas, such as cryptocurrency. Likewise, the DOJ moved away from a strategy that it characterized as “regulation by prosecution,” scaling back specialized units and prioritizing a smaller number of criminal cases.

Following President Trump’s February 2025 executive order pausing DOJ FCPA enforcement for policy review, the DOJ formally ended the pause in June 2025 with new enforcement guidelines emphasizing matters that affect U.S. economic and national security interests. Since then, enforcement has resumed under narrowed priorities, including at least one deferred prosecution agreement involving a Guatemalan telecom company. The agreement appears to signal a resumption of FCPA enforcement, but in a more targeted manner.

Looking ahead, we anticipate the DOJ to maintain this lighter, more focused regulatory approach.

The challenges of managing ESG risks

Environmental, social and governance (ESG) concerns have been a prominent area of discussion related to D&O risk for several years. Initially, organizations faced pressures from shareholders, regulators and other stakeholders, to address ESG from operational, cultural and investment perspectives. Globally, ESG-focused regulation has expanded, including SEC rulemaking and legislation in California and the EU. In the U.S.; however, a more recent ESG backlash has pressured the SEC to scale back the scope of its final climate rule, with the agency formally delaying implementation pending completion of judicial review of consolidated proceedings in the Eighth Circuit challenging the rule. Authorities in several U.S. states have pushed back on ESG initiatives, and the Trump administration has pursued an executive and legislative agenda to repeal policies and funding for climate change mitigation and science.

An exception to ESG pushback has been California’s legislation, Senate Bill 219 – “Greenhouse Gases: Climate Corporate Accountability: Climate-Related Financial Risk” – signed into law in September 2024. Generally, the legislation requires companies with significant revenues in California that do business in the state to publicly disclose greenhouse gas emissions data and climate-related financial risk reports. Although predictable legal challenges to the law are pending, disclosure deadlines are still slated for 2026. In one such case brought by the U.S. Chamber of Commerce, the U.S. District Court, Central District of California, in August 2025, denied the Chamber’s request to block the law on First Amendment and other grounds.

Another element of ESG risk, that of diversity, equity and inclusion (DEI), is also marked by backlash and uncertainty, with some businesses announcing rollbacks to DEI programs or, at least, diminishing their maintenance and promotion of quantitative, time-bound DEI goals within their sustainability reports. In addition, three states restricted DEI offices at public universities in 2024, and three additional states prohibited colleges from requiring diversity statements in hiring and admissions. Lawmakers in at least 10 other states have proposed legislation related to DEI in higher education. Since taking office, President Trump has issued executive orders and taken additional measures designed to eliminate DEI across the federal government and in the private sector.

SCA class certification standards under the microscope

On August 13, 2025, the Sixth Circuit reversed class certification in securities litigation against FirstEnergy Corporation. The court clarified that a plaintiff alleging both misstatements and omissions cannot avoid the stricter evidentiary standard for proving predominance of common reliance issues under Basic Inc. v. Levinson by framing the case as an omissions claim. It also found that the district court failed to perform the “rigorous analysis” of the class-wide damages methodology required by Comcast Corp. v. Behrend, which requires plaintiffs to show that damages can be calculated on a class-wide basis in line with their theory of liability.

Note that the Sixth Circuit assumed the continuing vitality of the presumption of reliance in a pure omission case, as established in Affiliated Ute Citizens of Utah v. United States. Nevertheless, the Supreme Court’s 2024 decision in Macquarie Infrastructure Corp. v. Moab Partners may have called that into question. See our article, “The Additional Pro-Defense Benefits of the Macquarie Decision.”

Application of the Comcast Corp. v. Behrend standard is also at issue in an appeal pending in the Fourth Circuit in In re The Boeing Company Securities Litigation.

The FirstEnergy and Boeing cases may clarify shareholder class certification standards to the point of making approval less of a rubber stamp. The outcomes have the potential to lead to fewer class certifications and reduced D&O insurer losses.

Key takeaways for D&O risk and insurance strategy in 2026

2026 is sure to be a year of transition and change for D&O risk, but with insurance market conditions expected to stabilize following years of steady rate reductions. We encourage readers to follow Willis FINEX on social media and on our Insights page for regular updates and other thought leadership.