From late 2025 to early 2026, D&O liability and coverage law saw major changes, with Delaware continuing to play a leading role. Notably, the Delaware Supreme Court issued pivotal rulings that favored policyholders, such as the January 2026 decision in Illinois National Insurance Co. v. Harman International Industries, which narrowly construed the "bump-up" exclusion and affirmed coverage for a significant post-M&A securities class action settlement. These developments highlight Delaware's tendency to interpret D&O policy exclusions in a manner beneficial to insureds, setting important precedents for future litigation.

Securities class action trends reflect a mixed picture.

Full-year 2025 data indicate SCA(1) filings decreased 7–11% to 207 (versus 226 in 2024), with healthcare remaining the most targeted sector. Average settlements fell modestly to around $40 million, yet the median rose 21% to $17 million (a 10-year high), underscoring larger outlier cases, escalating defense costs, and complexity in '33 Act-only matters. Aggregate recoveries dropped to $2.9–$3.0 billion. Early indicators for 2026 suggest continued moderation in frequency but sustained or rising severity driven by event-driven litigation, regulatory scrutiny, and complex derivative actions.

Insolvencies continue as a significant D&O trigger, particularly for private companies. Projections show global business bankruptcies rising another 5% in 2026 following prior increases, with "mega-bankruptcies" contributing to fiduciary breach allegations over oversight and decision-making.

High-profile coverage litigation.

2026 has delivered notable policyholder-friendly outcomes, particularly in Delaware. The Delaware Supreme Court's January 27, 2026, decision in Illinois National Insurance Co. v. Harman International Industries affirmed coverage for a $28 million post-M&A securities class action settlement, narrowly construing the "bump-up" (2) exclusion.

In the context of Harman International Industries, the court affirmed coverage for a $28 million post-M&A securities class-action settlement, interpreting the bump-up exclusion narrowly and allowing insurance to respond to the settlement rather than barring coverage outright. This reflects evolving legal approaches to the exclusion, often favoring coverage when alleged damages extend beyond mere price increases in a transaction.

Insurers did not prove the settlement represented an increase in deal consideration rather than a resolution to avoid litigation costs and risks. This ruling raises the bar for carriers invoking bump-up provisions and provides valuable precedent for Section 14(a) and merger objection suits.

Cases such as In re Alexion Pharms. refined the standard toward a "meaningful linkage" test rather than overly broad relatedness, affecting how claims aggregate across policy periods and potentially preserving limits. Delaware courts further addressed government civil investigative demands (CIDs) qualifying as "claims," contractual liability exclusions (narrowly applied in whistleblower/FCA contexts), and allocation issues in multi-insurer disputes. These developments continue Delaware's trajectory of construing exclusions narrowly and in favor of coverage.

AI-related litigation is still a focal point.

The landscape of Directors & Officers (D&O) liability is rapidly evolving, with AI-related litigation appearing as a central driver of legal, regulatory, and market changes as we enter 2026. Consider the following:

  • AI-washing suits proliferated in 2025, with themes including overstated capabilities, failure to disclose limitations, and algorithm performance issues. Over 50 AI-linked SCAs were filed from 2020 through mid-2025, often pairing with derivative claims alleging Caremark failures (3) in AI oversight.
  • A February 2026 suit added a "stock price pump" element tied to AI announcements, signaling evolving plaintiff strategies. Coverage for these claims falls within standard D&O forms, but insurers now scrutinize disclosures and governance documentation very closely.
  • Cyber-related D&O claims continue rising in frequency, with boards facing allegations of inadequate controls or response protocols following major incidents.
  • Tariff and geopolitical suits allege misleading statements on economic impacts, while ESG/DEI litigation persists in hybrid forms—some challenging corporate policies, others alleging fiduciary lapses in investment or disclosure decisions. PFAS and climate-related oversight claims add long-tail exposure.

Expected changes for the rest of 2026

The current market outlook is still cautiously stable. AM Best's stable outlook reflects improved loss ratios and tighter underwriting, but some experts expect flat-to-modest premium increases later in the year if severity persists amid inflation, slower growth, and AI/geopolitical uncertainties. Public company primary layers may see 0–5% reductions for strong risks, flat or slight increases for higher-risk profiles, while excess layers face increased scrutiny on rate per million. Private D&O should remain competitive, and retentions have stabilized.

Underwriting discipline is selectively sharpening. Expect more detailed requests for AI/cyber governance evidence, financial data, and risk management documentation. Capacity is expected to remain abundant absent major shocks, but middle-tower pricing may be firm throughout the year. Policy forms could evolve with clearer AI/cyber carve-backs or enhanced Side A protections.

Broader developments to watch include possible mandatory securities arbitration requirements (following SEC policy signals and state-level experiments), which could reduce class action frequency while increasing individual claims. "DExit" trends(4) and fluctuating IPO/M&A activity may influence public D&O demand.

Conclusion and Recommended Steps to Take

While securities class action frequency moderated modestly in 2025, the combination of record median settlements, new litigation theories, and evolving risks keeps the D&O market challenging. Delaware's continued policyholder-friendly momentum on coverage issues offers some protection, but initiative-taking management is still essential.

Recommended steps include:
(1) Conduct a thorough D&O policy audit focusing on bump-up, related-claims, conduct, and allocation clauses, especially in light of the Harman decision;
(2) Increase board documentation and risk committee processes for AI, cyber, and geopolitical oversight with regular, detailed minutes;
(3) Implement scenario-based stress testing for emerging exposures and integrate findings into risk management reporting;
(4) Review and align cyber/D&O program structures for efficient claims handling and preservation of coverage limits; and
(5) Engage experienced insurance brokers well in advance of renewals to leverage strong governance records for optimal terms and capacity.
By executing these measures, organizations can convert potential liabilities into opportunities for stronger protection and competitive advantage in a market that rewards preparedness.

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(1) SCA stands for securities class action, which is a type of lawsuit filed by investors who allege they suffered financial harm due to misleading statements, omissions, or other violations of securities laws by a company or its executives. These actions are typically brought on behalf of all affected shareholders.

(2) The bump-up exclusion is a provision commonly found in Directors & Officers (D&O) insurance policies. It prevents coverage for claims where the insured company must pay added amounts to shareholders—typically in the context of mergers and acquisitions—because a court or settlement decides the original purchase price paid for shares was too low. This exclusion applies when the claim seeks to "bump up" the price paid in a transaction, rather than compensating for independent damages. The exclusion is intended to ensure D&O policies do not function as a guarantee for transactional pricing or indemnify increased acquisition costs.

(3) Caremark failures refer to a board of directors' failure to implement reasonable systems for monitoring and reporting on the corporation's compliance with laws or its core operations. The term comes from the 1996 Delaware case In re Caremark International Inc. Derivative Litigation, which established that directors can be held liable if they utterly do not establish information and reporting controls, or if, having such controls, they consciously disregard red flags indicating problems. In practice, a Caremark claim alleges that directors breached their duty of loyalty by ignoring or inadequately overseeing significant risks (such as those related to AI governance or compliance).

(4) The term "DExit" is a play on "delisting exit," describing the movement of public companies out of the U.S. public markets, often due to challenging regulatory, economic, or litigation environments. These trends can lead to a contraction in the number of public firms seeking D&O coverage, as companies either leave the market or delay IPOs and M&A transactions, thereby influencing the dynamics of the D&O insurance marketplace.