Emerging D&O Risks That Demand Board-Level Attention
As D&O insurance evolves, so do the exposures that trigger coverage. Here’s a closer look at four increasingly relevant risks that directors and officers must navigate with precision:
AI Washing and Oversight Failures
AI washing refers to the practice of overstating or misrepresenting a company’s use of artificial intelligence to attract investors or inflate valuations. Companies may claim their products are “AI-powered” when they rely on basic automation or manual processes. The SEC has begun cracking down on misleading AI disclosures, and shareholder lawsuits have followed when performance fails to match the hype. D&O insurers now scrutinize AI governance, requiring boards to demonstrate oversight of third-party vendors, data privacy, and disclosure accuracy.
Derivative Lawsuits: Governance Under Fire
Derivative suits are brought by shareholders on behalf of the corporation, typically alleging that directors or officers breached fiduciary duties. These claims often target failures in oversight, self-dealing, or mismanagement. Because settlements are paid to the corporation—not the shareholders—Side A D&O coverage becomes critical, as companies cannot indemnify executives for these payouts. The rise in large-dollar settlements, especially in M&A and fraud cases, has made robust Side A protection a boardroom priority.
Bankruptcy-Related Claims: Coverage Gaps Loom
When a company enters bankruptcy, directors and officers lose access to corporate indemnification. This exposes them to personal liability for pre-bankruptcy decisions, including alleged mismanagement or breach of duty. Coverage disputes often arise over whether D&O proceeds are part of the debtor’s estate, and courts may restrict access to policy funds. Policies with clear “order of payments” and bankruptcy carve-outs are essential to ensure executives aren’t left defenseless when insolvency strikes.
These risks aren’t theoretical—they’re active fault lines in today’s D&O landscape. Boards must treat them as strategic priorities, not just insurance footnotes.
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Emerging D&O Risks That Demand Board-Level Attention
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