PLUS panel: Political 'pendulum swing' responsible for changing D&O insurance trends in 2025

By Isha Marathe

March 10 - (The Insurer) - President Trump's executive orders targeting DEI and ESG initiatives, the appointment of business-friendly SEC leadership and a new securities litigation landscape have laid the groundwork for a reshaping of D&O insurance, said panellists at last week's PLUS D&O Symposium.

Political issues around corporate diversity, equity and inclusion initiatives and climate change disclosure rules are likely to have ramifications for D&O policies, or expose intersecting policies such as employment practices liability and D&O, the panel said.

As D&O underwriters plan for the coming months, one area to keep an eye on is the different political and cultural "pendulums swinging" federally and within individual states, said Larry Fine, management liability leader at WTW.

Disclosures related to AI use and the trend of forum shopping where Delaware is concerned should further attract underwriters' attention to the patchwork of state laws around data privacy and securities class actions.

The panel highlighted DEI and ESG as the key catalysts for changes in D&O policies.

DEI

The Trump administration is looking to shut down private DEI programs that the federal government might deem "illegal".

RT ProExec executive vice president Kevin LaCroix said securities class actions and shareholder derivative claims may result from DEI-related exposures.

But he noted that previous cultural trends have tested D&O policies in similar ways.

For instance, the latest iteration of the #MeToo movement, a survivor-led effort to battle sexual violence that kicked off in 2017, resulted in a spike in claims related to pay gaps, discrimination, race, age, pregnancy, religion and sexuality against directors and officers.

Target's stock fell by $27.27 per share at the end of February, erasing nearly $12.4 billion in market value, when the company rolled back its DEI initiatives after Trump's executive orders, prompting customers, civil rights groups and, potentially, its shareholders to take action.

However, the Target boycott coincides with the state of Florida and America First Legal suing the company for allegedly concealing the financial risks of its DEI programmes, specifically its 2023 Pride Month merchandise collection.

WTW's Fine said that share price drop cases would be covered by D&O while some other DEI exposures "could be seeing some challenges trying to walk the line between D&O coverage (and something that) look(s) more like EPL claims".

A good D&O underwriter is going to have to learn to anticipate which policy carve-outs are likely going to be born of a new type of litigation, and which exposures harken back to previous issues, the panel said.

"Intersecting policies (are) not a unique situation for D&O insurers," said Jennifer Odrobina, senior vice president, head of financial lines claims at Sompo.

"It is something that as an insurer I would not want," she said, but the impact of the DEI executive orders is likely to create overlapping exposures that the D&O industry is going to have to deal with. "I think companies are (going to) have to be really thoughtful about how to mitigate these gaps, how (to) define what covers what potential scenario."

ESG AND SEC

The panel said that Trump's appointment of Mark Uyeda, often touted as the "anti-Gensler", as the acting chairman of the SEC is likely to shrink and, to a certain degree, de-fang the agency.

As a result, businesses can expect to see a friendlier regulator than in the Biden years.

However, the SEC's Enhancement and Standardization of Climate-Related Disclosures for Investors, a set of amendments adopted in 2024, may create tensions between shareholders, state regulators and a federal administration urging a rollback of corporate ESG obligations.

The now-dubbed Climate Change Rule requires public companies to make detailed climate-related disclosures in registration statements and annual reports, including data on greenhouse gas emissions and other details that may have financial impacts on an issuer's business.

Soon after, several companies sued the SEC for the rule. These suits were consolidated in the Eighth Circuit.

In February, Uyeda opted out of scheduling an oral argument in the pending litigation, effectively dropping the SEC's aim to uphold the contested rule.

The action means that the ESG ball is back in the private sector's court – and like DEI, investors may or may not be happy with the choices they make, potentially setting up securities class actions, the panel said.

"Even if the proposed amendment doesn't go forward, whether or not companies will potentially still have D&O risks is (something underwriters) have to ask," said Odrobina.

She expects claims related to a false representation about the environmental safety of products, consumer protection suits out of states like California or New York, and other claims related to unfair or deceptive trade practices.

"With companies, you have (climate-related) disclosures that you're required to do, (under the new SEC), you may not have disclosures that you're required to do. Four to eight years from now, it might change, and those disclosures might come back," Odrobina cautioned.

"So for companies, it's important to take a step back and not make any changes but (rather) think about how they're disclosing it to (their shareholders)."