Directors & Officers Insurance

Directors and officers insurance is actually a bit of a misleading name. D&O is very similar to errors and omissions insurance, however instead of covering professional service failures, it covers alleged mismanagement by both the company, and it’s executives. Only one third of a D&O policy (Side A Insurance) truly protect the corporate officers. The remaining two thirds of a D&O policy (Side B and C) actually protect the company itself by protecting its balance sheet, covering claims made against the entity itself, and paying indemnifiable claims against brought against its executives, that would otherwise have to be paid by the company. For a more in depth explanation of the ABC’s of D&O, please see our recent insight here.

Corporate officers will be operating in a particularly challenging environment heading into 2026. Economic instability, tariffs, inflation and the emergence of artificial intelligence are creating a multi-faceted risk environment creating a number of unpredictable challenges. Before addressing some of the policy coverages and providing recommendations when reviewing policy terms, it’s important to understand the current risk landscape.
 

Emerging Risks for 2026
 

Artificial Intelligence: According to recent statistics, well over half of all US companies have implemented AI for one or more operational processes, within their organization. Errors in models, hallucinations, bias (including price discrimination), discrimination (when using AI to make employment decisions), mis-representing the capabilities of AI, failing to disclose the use of AI within an organization, and unlawfully collecting data are just a few types of claims that can trigger shareholder litigation. Executives also face the added risk of regulatory enforcement and fines resulting from compliance failures. The current AI regulatory environment is a dizzying patchwork of emerging regulations passed at the state level (each differing considerably) and amendments to existing discrimination and privacy laws (among others). According to IAPP’s regulation tracker, as of today there are nearly 2 dozen regulations on the docket. Further complicating matters, few insurers, attorneys and/or insurance brokers understand the risks associated with AI and how existing insurance policy language may (or may not) respond. In response to these concerns, some carriers are slowly beginning to implement extremely broad AI exclusions, eliminating coverage for any claims in any way related to the usage of Artificial systems.

Tariffs and Inflation: Tariffs and inflation are regularly cited as one of the most significant concerns among the c-suite heading into 2026. In addition to any increased manufacturing and procurement costs which can reduce profits, customers/clients may also reduce spending or seek alternative solutions, resulting in lost clientele. Companies that fail to adequately disclose their exposure to the risks posed by the tariffs and inflation, or those that fail to properly plan may further attract investor litigation. This can lead to some companies implementing “questionable” accounting practices which can attract shareholder claims. Additionally, concerns over the financial effects of tariffs and inflation can result in decreased investor activity creating challenges in raising additional capital.

Economic Uncertainty and Increased Insolvencies: According to Cornerstone Research, mega bankruptcies increased significantly in 2025 and S&P Global also reported a very active first half of 2025 - and the effects of tariffs and inflation are still to be fully felt. In response to economic uncertainty, companies would be wise to plan for a worst case scenario, ensuring their D&O programs are properly structured for downturns, mass layoffs, creditor claims and any potential insolvencies – emphasizing the importance of an adequate layer of Side A DIC. 

Litigation Involving Product Failures and False Advertising: There appears to be a surge in litigation against consumer product companies, alleging product failures and misrepresentations, resulting in significant defense costs and potentially large settlements. Similarly, there has also been a continued increase in litigation (including regulatory actions and class actions) alleging false advertising and deceptive pricing. As a result, some carriers are beginning tightening terms pertaining to their product defect, false advertising and deceptive trade practice exclusions. 

Continued Cyber and Privacy Litigation: The number of data breach and privacy related lawsuits is at an all time high. According to IAPP, the number of privacy litigation cases filed annually has increased regularly year over year, nearly doubling since 2020 and is continuing its steady climb. As a result, the potential for follow-on shareholder claims and derivative actions are also more likely now than ever.  

Emerging Employment Litigation: In a more welcomed trend for corporate officers, EEOC enforcement decreased significantly in 2025. There are however some newer trends increasing liability. Pay transparency laws are emerging, as is the potential for discrimination lawsuits stemming from suspected bias in AI models used to make employment decisions, and claims alleging discriminatory pricing practices (which could potentially be covered under the 3rd party insuring agreement within an EPLI policy). Many state lawmakers have been addressing with newly passed/proposed legislation.

Cross Border Risks: It’s not uncommon for tech companies to begin operations in a foreign country (possibly with a US holding co), only to later expand to the US as their product matures. In some cases, these foreign entities may have coverage placed in their local country, which is believed to extend adequate protection for their US subsidiary, which is often not the case. In addition to being drafted according to local law (which can create coverage gaps), foreign policies may also contain problematic “choice of law” clauses, or even exclude suits brought in the US altogether which is not uncommon. Relying on such foreign placed coverage, which is often inadequate, can also result in risk to any US based PE/VC firms as well, in the form of “alter ego” and “control person” liability.
 

Coverage Considerations
 

• When D&O is purchased alongside other coverages, such as EPLI, crime or fiduciary liability, are policy limits shared or dedicated?
• Has the organization properly covered all entities for whom coverage is intended? This would include any subsidiaries, foreign entities (that may require separate locally placed coverage), former entity names (if there have been any name changes), advisory board members, etc. 
• Does the policy provide 100% defense cost allocation?
• Does the policy provide for an advancement of defense costs if the company wrongfully refuses to provide indemnification?
• Does the policy contain a carve-back for capital raised under the JOBS Act? Where some carriers explicitly provide full coverage, some contain sub-limited coverage and yet others only agree to provide a quote should such capital be raised under the act. 
• Does the policy contain a problematic majority shareholder exclusion? Most carriers will exclude coverage for claims brought by any shareholders with over 10% equity with some carriers going as low as 5%. However some carriers contain no such exclusions and almost all carriers will agree to remove a majority shareholder exclusion, should any/all individuals meeting such ownership thresholds have board representation. In such cases, most claims involving infighting would still be excluded by the "insured vs insured" exclusion, however, since the "I vs I" exclusion does contain carvebacks, this would still provide more favorable terms. 
• Is coverage included for books and records costs (associated with derivative actions) - an enhancement more carriers today are willing to provide.
• Is the policy's coverage for entity related investigations broad? Or does it require a "wrongful act" or naming of an insured person (which both often only occur during "formal" investigations).
• Does the policy contain an anti-trust or false advertising exclusion? Many carriers have begun to soften and/or remove such exclusions. 
• Has the policy replaced its "insured vs insured" exclusion with the more favored "entity vs insured" exclusion (which could preserve coverage for some claims involving infighting)
• Are the policy's professional services and contractual exclusions overly broad or have they been appropriately narrowed (to preserve coverage for claims brought by shareholders and non indemnifiable claims against individual directors and officers)?
• Does the policy contain any explicit AI exclusions? 
• Has the organization incorporated any Side A DIC insurance?
   

What's Excluded?
 

While exclusions can vary significantly from carrier to carrier, most policies contain exclusions for the following claims (among others):

Infighting: Many D&O policies contain “insured vs insured” exclusions that are intended to preclude coverage for infighting. There are however exceptions to this exclusion – most policies will carve back derivative claims, cross claims, claims brought by directors that have not served for 1-2 years, claims brought during insolvency, and claims brought by whistleblowers. Additionally some policies have since updated their forms to contain a more narrow “entity vs insured” exclusion, which is more favorable to policyholders.

Professional Service Failures: Claims related to, or arising from professional service failures are almost always excluded, as they rightfully belong insured under an appropriate E&O policy. The problem however, is that many service exclusions over-reach and can ultimately preclude coverage for claims that should be covered, such as those brought by shareholders, and non-indemnifiable claims against insured persons.

Contract Disputes: Similarly almost all policies contain exclusions for contractual liabilities, as these are considered business risks within the insured’s control.  Such exclusions can however suffer from the same over-reach we discussed above. Since so many corporate acts rely on contracts, it’s extremely important to ensure any D&O policy secured contains appropriate carvebacks, otherwise it can act as a blanket exclusion precluding coverage for a wide range of claims.

Illegal Conduct: Fraud, willful violations of law, and claims alleging illegally gained profit are always excluded if determined by a final adjudication. Almost all D&O policies will however fund the defense until such a ruling is made. When reviewing coverage, it’s also important to ensure the conduct exclusion contains appropriate severability language, preserving coverage for innocent/unaware insureds.  
 

FAQ
 

How Much Does Coverage Cost? Policies cost less than many might assume. The beginning annual premiums for a 1 Mill policy are as follows: 1,500 per year for non-profits, 3,000 for small private companies, 30k for small public companies and upwards of 100k plus for larger or higher risk organizations.

Aren't I protected by The Corporate Veil and my Corporate Indemnification Agreement? Corporate veils do protect companies, to a certain extent. But court rulings can be unpredictable, and in certain situations corporate status can be bypassed effectively exposing the directors and officers’ personal assets. Claims asserting fraud, claims asserted by creditors that suffered from “gross under-capitalization”, and claims related to the commingling of assets are all examples of claims that can result in a piercing of the corporate veil. Companies that are "closely held" are also more likely to encounter such claims. While corporate indemnification is the first line of defense, that protection can still fail. Corporate officers may fall out of favor with the company, resulting in the company (wrongfully) refusing to provide indemnification, or, the company may become insolvent legally prohibited from providing indemnification (as in the case of a derivative settlement, in most states).

Does A Personal Umbrella Cover Me? Simply put, no, they don’t.

Am I Protected by the Business Judgement Rule? The business judgement rule has long provided a certain layer of protection to officers when making business decisions. However, many recent court cases indicate that the business judgement rule does not provide the same level of protection that it had years ago.