D&O Risks Emerge as Corporate Landscape Shifts, Experts Say
NEW YORK — Directors and officers (D&O) liability coverage is facing a new wave of risks, according to a panel of experts speaking at the Professional Liability Underwriting Society D&O Symposium. These emerging challenges stem from evolving factors, including artificial intelligence (AI), shifts in diversity, equity, and inclusion (DEI) and environmental, societal, and governance (ESG) initiatives, and companies considering reincorporation outside of the state of Delaware.
Moderated by Kevin LaCroix, executive vice president of RT ProExec, the panel highlighted several key areas of concern. One significant risk identified involves rollbacks of DEI and ESG programs. These changes, the experts noted, could trigger a rise in securities class actions and regulatory enforcement actions from government agencies.
Adam Ziffer, an insurance recovery partner at Cohen Ziffer Frenchman & McKenna LLP, observed that the litigation landscape is changing. He stated that upcoming cases “aren’t the ‘up the middle’ stock drop cases on the public company side.” The removal of these initiatives could expose public companies to claims of inadequate disclosure from shareholders, while private companies might face lawsuits related to unfair trade practices.
Jennifer L. Odrobina, senior vice president and head of financial lines claims at Sompo International, advised caution, suggesting businesses to take a step back, avoid drastic changes, and carefully consider disclosure strategies in relation to revisions to DEI or ESG programs. She also emphasized the ongoing relevance of existing discrimination laws.
Larry Fine, the management liability coverage leader for Willis Towers Watson PLC’s FINEX North America division, also contributed to the conversation.
Another emerging trend identified by the panel is companies exploring reincorporation outside of Delaware, with Nevada and Texas being cited as potential destinations. Odrobina warned that underwriters should weigh the risks of such moves carefully, closely reviewing the relevant state’s legal frameworks.
One of the main benefits of Delaware’s legal system is its consistency and predictability, due in part to its established case law and specialized business court system, which facilitates faster resolution of legal matters compared to states like Nevada and Texas. Texas, which launched its own business court system last September, is likely to draw heavily on Delaware case law, Ziffer noted. Delaware’s adherence to a 90-day rule for issuing rulings after a motion is fully briefed or argued, as well as the receptive nature of its judges to working with counsel on litigating claims, are also major considerations.
The panel said that AI’s increasing use will be an evolving exposure for companies and will be part of their risk profile. Odrobina stated that the insurance industry needs to consider how companies use AI to understand and underwrite the aggregated risks associated with it. According to a report by Cornerstone Research, instances of securities class actions related to AI doubled in the past year compared to 2023.
Panelists agreed that potential future lawsuits involving AI could arise from developing regulatory environments, understated risks and from failures in monitoring AI operations.
Fine added that while AI doesn’t appear likely to generate significant coverage issues, he has seen some insurers adding clarifying language in their D&O policies to address impending regulations from the European Union relating to AI.
Ziffer said that AI could affect the D&O space by making litigation more effective and less costly.
