Recent D&O Claims Developments

The D&O claims environment is now in an unusually uncertain state, largely due to the potential for unprecedented and wide-spread changes directly and indirectly caused by the AI revolution and the current Trump administration. It is hard to overstate the impact AI will have on virtually all industries and companies, creating enormous and critical governance challenges for directors and officers. Plus, most industries must now operate in the shadow of constantly changing and highly consequential Trump administration policies and decisions, resulting in an unpredictable and volatile environment for companies and their directors and officers.

History has shown that in times of significant uncertainties and changes, D&O claims often thrive, sometimes in surprising ways. Although recent D&O claims developments may not be good predictors of future claims in these unusual times, understanding recent developments remains important as a partial window into the future.  The following summarizes many of the more important recent legal developments involving D&O claims.

1. Securities Class Action Litigation. According to NERA, in 2025 the frequency of new federal securities class action litigation filings decreased to the lowest level since 2021 (207 compared to 232 in 2024), reversing three straight years of increases. This overall decrease is attributable to significant decreases in certain types of securities class actions, including fewer SPAC, COVID, and foreign-issuer related suits. The technology and healthcare sectors accounted for a combined 57% of the filings.

The number of securities class action lawsuits dismissed by courts increased from 124 in 2024 to 155 in 2025.

The aggregate value of all securities lawsuit settlements in 2025 declined to $2.9 billion, compared to an inflation-adjusted $3.9 billion in 2024 (25% drop), due to fewer settlements in 2025. But, the median settlement value per case increased 21% to $17 million, which is the highest level since 1997. That increase is primarily attributable to a more than three-fold increase in the median settlement amount for 1933 Act-only lawsuits. The total securities class action settlement amounts for the first half of 2026 are on track to reach an annualized six-year high, primarily due to four settlements of more than $100 million.

The traditional belief that securities class actions which survive a motion to dismiss are largely indefensible as a practical matter and therefore must be settled is being challenged by two types of recent developments. First, an increasing number of Federal Courts of Appeal and District Courts are examining whether certain securities suits should be certified as class actions, following a 2021 Supreme Court ruling which imposed harder class certification standards for plaintiffs in securities cases. Although many of these courts still certify the class despite the harder standard, there appears to be an increased willingness by some courts to deny class certification, thereby effectively terminating the litigation.

Second, contrary to historical practices, several securities class actions have gone to trial in recent months, with mixed results. For example:

• On March 20, 2026, a jury in a securities class action lawsuit against Elon Musk determined that two statements by Musk on social media in 2022 regarding his proposed $44 billion acquisition of Twitter misled Twitter shareholders into believing the proposed acquisition would not occur, resulting in a drop in Twitter’s stock price. The jury awarded per-share damages between $3 and $8 a day (which reportedly constitutes about $2.6 billion in aggregate damages). Although the verdict is being appealed, the verdict illustrates several important points. First, there usually are enormous risks in taking a securities class action to trial. Second, the case demonstrates the risks associated with executives making comments on social media regarding important events, sensitive developments, or activities. Third, the case is an example that securities class actions can be based not only on misrepresentations that artificially inflate the securities’ market price (which is the typical allegations), thereby harming shareholders who purchased securities during the class period, but also on misrepresentations that artificially lower the securities’ market price, thereby harming shareholder who sold their securities during the class period.
• On April 28, 2026, a California federal jury rendered a defense verdict in a securities class action lawsuit against hedge fund Armistice Capital and two of its executives, finding the defendants did not make materially false statements about one of its publicly-owned portfolio companies, and did not engage in illegal insider trading, as part of an alleged pump-and-dump scheme to inflate the market price and then sell over $200 million of the portfolio company’s stock.
• On May 14, 2026, a Texas federal jury rendered a defense verdict in a securities class action lawsuit against Exxon and its former executives, finding the defendants did not make materially false statements regarding the value and profitability of certain company operations and natural resource assets.

1. 2. SEC Enforcement. In addition to private securities litigation, D&Os need to also be concerned about SEC enforcement activity. Although the Trump Administration has signaled a more business-friendly regulatory environment in numerous areas, D&Os continue to face meaningful exposures to the SEC for several reasons, including the following:

First, the revolving leaders at the SEC’s Division of Enforcement (dating back to the first Trump administration and before) have repeatedly stated that “individual accountability” is one of the Division’s “core principles,” and that “pursuing individuals has continued to be the rule not the exception.” Current Division of Enforcement leaders publicly confirmed this philosophy in May 2026 by acknowledging individual liability is now the SEC’s primary deterrent mechanism and by stating the SEC is no longer interested in collecting large penalties from companies for alleged wrongdoing while individuals escape accountability. As a result, directors and officers will continue to be subject to expensive and problematic investigations and proceedings by the SEC even under the Trump Administration.

Second, the SEC whistleblower program continues to receive a remarkable number of complaints (more than 25,000 in FY25). But the total amount of bounty awards granted in FY25 dropped significantly to $59.7 million compared to $255 million in FY24 and $600 million in FY23, which may discourage complaints being filed in the future.

Third, SEC enforcement actions can be particularly problematic for D&Os because they frequently last a long time and usually cannot be resolved at the same time as parallel securities class action and shareholder derivative litigation. As a result, a sufficient amount of the company’s D&O insurance limits should be preserved following a settlement of the private litigation to fund the ongoing and potentially very large costs in the SEC action.

However, in June 2024, the U.S. Supreme Court granted some relief for companies and their directors and officers in SEC enforcement proceedings by ruling the SEC cannot use in-house administrative proceedings to impose civil fines for securities fraud. Instead, the SEC must use courts for assessing those monetary sanctions, which is viewed as a more even-handed forum for the defendants.

3. Derivative Suits. Historically, shareholder derivative lawsuits (which are cases brought by shareholders on behalf of a company against D&Os seeking damages incurred by the company as a result of alleged wrongdoing by the D&Os) have presented relatively benign exposures. Although frequently filed in tandem with a more severe securities class action, derivative suits usually have been dismissed by the court or settled for relatively nominal amounts for several reasons. For example, a committee of independent directors who were not involved in the alleged wrongdoing may determine that prosecution of the derivative suit on behalf of the company is not in the company’s best interest, in which case the court may dismiss the case. Likewise, the defendant D&Os usually have several strong defenses in the derivative suit, including pre-suit demand requirements, the business judgment rule, state exculpation statutes, and reliance on expert advisors.

Despite these procedural and substantive defenses, an increasing number of derivative suits are now settling for large amounts. The following summarizes many of the more recent “mega” derivative settlements.

 

Company	Type of Incident	Derivative Settlement
Tesla	Excessive executive compensation	$735 million of returned cash and equity compensation
Alphabet	Alleged monopolization of search engine and advertising markets	$500 million compliance reforms
Wells Fargo	Widespread improper consumer banking practices	$320 million
Alphabet	Alleged culture of sexual discrimination/harassment and mishandling of complaints against senior executives	$310 million diversity and equity fund for governance reforms
Renren	Transfer of company assets to privately owned company at undervalued price	$300 million
VEREIT	Financial statement errors	$286 million
Activision Blizzard	Executive officers unfairly acquired a controlling interest in the company	$275 million
Boeing	Alleged breach of the board’s safety oversight duties resulting in crash of two Max 737 aircraft	$237.5 million
Meta	Breach of customer privacy regulations	$190 million
FirstEnergy	Executives bribed state officials	$180 million
Insys	Opioid-related wrongdoing	$175 million
McKesson	Opioid-related wrongdoing	$175 million
CBS/Paramount	Allegedly unfair merger terms	$167.5 million
AIG	Allegedly fraudulent $500 million reinsurance transaction to mask company losses	$150 million
News Corp.	Relative of majority owner personally benefitted from acquisition of company; company’s employee journalists used illegal reporting tactics	$139 million
Freeport-McMoRan	Merger fraught with allegations of sweetheart deals and self-dealing	$137.5 million
Cardinal Health	Opioid-related wrongdoing	$124 million
Walmart	Opioid-related wrongdoing	$123 million
Oracle	$900 million in insider trading in advance of disappointing earnings announcement	$122 million
Broadcom Corp.	Options backdating scandal that resulted in $2.2 billion write-down	$118 million
Altria Group Inc.	$12.8 billion investment in vape manufacturer Juul	$117 million (including $100 million for programs to combat underage nicotine use)
AIG	Allegation that company paid sham commissions to a closely-held insurance agency	$115 million
Cencora Corp (fka AmerisourceBergen)	Opioid-related wrongdoing	$111.25 million
Wells Fargo	Discriminatory hiring and lending practices	$100 million borrower assistance fund for minority low income borrowers
Hawaiian Electric Industries	Alleged failure to prepare for deadly wildfires	$100 million
L Brands	Alleged sexual harassment and toxic workplace	$90 million governance reform fund plus $21 million attorney fee award
21st Century Fox	Allegedly rampant sexual harassment by former Fox executives	$90 million
PG&E Corp.	Gas Line Explosion	$90 million
Pfizer	Off-label marketing of drugs resulting in federal investigations and claims under the False Claims Act	$75 million
Bank of America	Acquisition of Merrill Lynch based on allegedly false statements about Merrill’s losses	$62.5 million

 

These large derivative suit settlements are not the result of new laws creating increased liability exposures for directors and officers, but instead primarily reflect an increased focus by the plaintiffs’ bar on derivative lawsuits (perhaps fueled in part by the popularity of Side A policies in D&O insurance programs today). However, despite these large settlements, the majority of derivative lawsuits continue to be dismissed or settled for nominal monetary consideration for the reasons described above.

4. Criminal Proceedings. In recent years, regulators, prosecutors and commentators have repeatedly discussed the importance and purported commitment by the government to hold executives criminally accountable for wrongdoing. In the aftermath of the financial crisis in the late 2000s, there was a large public outcry for the prosecution of responsible individuals, although those prosecutions were essentially non-existent. Regulators and prosecutors both then and now repeatedly express the importance of criminal prosecution of executives.

But, despite this rhetoric, the prosecution of white-collar crime remains surprisingly infrequent, particularly with respect to directors and senior executives of large public companies where decisions are often made “by committee” without clear attribution to one or a few individuals who possess the necessary intent to violate the law. In addition, prosecutors often have limited resources and usually only bring cases they believe they can win.

Under the Trump administration, white-collar criminal prosecutions have evolved significantly. The DOJ is now reportedly hyper-focused on cases involving immigration enforcement, cartels, drugs, and government fraud, waste and abuse, including healthcare fraud, and is less focused on cryptocurrency, securities fraud, antitrust, federal corruption and other classic white-collar cases. For example, in 2025 an estimated 25,000 federal agents reportedly were diverted away from white-collar criminal investigations to immigration enforcement.

The DOJ’s focus on the criminal prosecution of directors and officers for violations of the Foreign Corrupt Practices Act is less clear. For example, on June 9, 2025, the DOJ issued new guidelines for FCPA investigations and enforcement proceedings in response to President Trump’s February 10, 2025 Executive Order which paused enforcement of the FCPA and directed the DOJ to issue updated policies governing FCPA investigations and proceedings. Under the new guidelines, the DOJ will primarily focus on four factors when considering whether to prosecute someone for FCPA violations: whether the conduct (i) was linked to drug cartels or other transnational criminal organizations; (ii) harmed U.S. companies or individuals; (iii) involved critical infrastructure or otherwise implicated U.S. national security interests; or (iv) involved serious misconduct, such as substantial bribe payments, sophisticated efforts to conceal bribe payments, and efforts to obstruct justice. In reality, these new guidelines do not appear to materially alter the DOJ’s past FCPA enforcement practices. For example, in September 2025, the DOJ obtained the conviction of a U.S. business owner/executive for participating in a scheme to bribe Honduran officials in exchange for contracts to supply uniforms. Plus, at least three other criminal FCPA cases brought by the DOJ against individual business owners/executive for similar bribery and money laundering schemes are scheduled for trial in Q1 2026.

Despite this likely temporary shift in federal criminal prosecution policies, recent cases demonstrate that criminal exposure for executives can be very real in three contexts:

First, even in a large public company, senior executives who have direct responsibility for matters which create spectacular losses can be incarcerated. For example, in the last few years the former CEO and COO of SCANA pled guilty to defrauding customers and others with respect to a failed $9 billion nuclear construction project; the former CEO of SAExploration and the former CFO of Roadrunner Transportation Systems were sentenced to three years and two years in prison, respectively, for their roles in fraudulent accounting schemes at their companies; the former CEO (Elizabeth Holmes) and former COO of Theranos were convicted of securities fraud and sentenced to 11 years and 13 years in prison, respectively; the former CEO of cryptocurrency company FTX (Sam Bankman-Fried) was convicted in 2023 of multiple counts of fraud and sentenced to 25 years in prison; the former CEO of cryptocurrency company Biance Holdings pled guilty to violation of the Bank Secrecy Act by failing to adopt anti-money laundering policies and was sentenced to four months in prison; and the founder of Terraform was sentenced to 15 years in prison and ordered to forfeit $19 million for orchestrating a fraud causing “real people to lose $40 billion in real money.”

Second, lower-level executives who more easily can be shown to have knowingly participated in criminal wrongdoing are more frequently prosecuted than senior executives. Recent examples of charges against mid-level executives include: (i) six mid-level executives of Citigo were convicted in Venezuela of corruption charges, (ii) the Senior Vice President of Governmental Affairs of Com Ed pled guilty to charges involving the bribery of governmental officials, (iii) an executive of Sandoz, Inc. pled guilty to price-fixing charges involving generic drugs, (iv) a former executive of Netflix was convicted of money laundering and bribery for accepting stock options, cash and gifts from third-party vendors in exchange for lucrative contracts with the company, (v) an Assistant Vice President of an insurance company pled guilty to fraud in connection with a $3.9 million scheme to scam the company for phony construction work and kickbacks from vendors, (vi) a former mid-level executive of GE Power was sentenced to seven years in prison after being convicted of forgery and taking a $5 million kickback in connection with a $1.1 billion transaction in his native Angola; and (vii) a former risk executive of Mars, Inc. was sentenced to 63 months in prison and ordered to pay $28.4 million in restitution for conducting a decade-long fraud scheme.

Third, individuals who are senior executives (and also large owners) of smaller companies are easier targets of criminal charges because of their more intimate knowledge of company operations. For example, in 2025, (i) the former CEO of Kubient Inc. was sentenced to one year in prison for inflating the company’s revenue by $1.3 million and lying about an artificial intelligence-powered tool developed by the company to detect digital ad fraud, (ii) the former CEO of Plus Inc. was sentenced to two and one-half years in prison for securities fraud regarding the company’s revenue from purported artificial intelligence technology developed by the company, (iii) the former CEO of Celsius Network was sentenced to twelve years in prison for deceiving customers about the crypto lender’s business practices and falsely inflating the company’s token price; (iv) the former CEO of SCWorx Corp. was convicted of securities fraud for publicizing a $670 million COVID-19 test kit contract that never materialized ; (v) the former CEO of crypto company NAC Foundation was sentenced to seven years in prison for stealing more than $10 million from tens of thousands of investors; (vi) the former CEO of FTE Networks Inc. was sentenced to 12 years in prison for concealing the company’s weak financial condition and embezzling company funds; (vii) the former CEO of First NBC Bank was sentenced to 14 years in prison for bank fraud which caused the bank’s collapse; (viii) the former CEO of Power Mobility Doctor Rx LLC was sentenced to 15 years in prison and ordered to pay $452 million of restitution for illegal medical kickbacks; and (ix) the former CEO of CytoDyn was sentenced to 30 months in prison and ordered to pay $5 million in restitution for securities fraud and insider trading. In 2026, the former CEO of crypto company Safe Moon was sentenced to eight years in prison for defrauding investors; the former CEO of Constellation Healthcare Technologies was sentenced to five years in prison for defrauding investors; and the former CEO of HealthSplash was convicted of defrauding Medicare of about $450 million.

5. Cyber Claims. Unquestionably, cyber-related losses and claims are one of the most troubling future exposures for companies. It is virtually impossible for companies to prevent cyber attacks. Loss mitigation, rather than loss prevention, seems to be the only strategy available for most companies.

Surprisingly to some, the liability exposure of directors and officers for cyber-related claims is less predictable. Prior to 2017, no cyber-related securities class action lawsuits were filed even with respect to very large and highly-publicized cyber intrusions at large companies. More recently, plaintiff lawyers have filed a growing number of such securities class actions, including cases against Marriott, Chegg, Google/Alphabet, FedEx, Capital One, First American Financial Corp., SolarWinds, Yahoo!, Equifax, Telos, Octa and their D&Os. These cases are still somewhat uncommon despite the large number of companies which experience data breaches because in most cyber attack situations, the company’s stock price does not materially drop following disclosure of the attack. But, if there is a material stock drop following disclosure of the cyber breach, a securities class action is likely, and those securities class actions can be expensive, particularly if the company failed to promptly disclose the breach. For example, the Alphabet (Google) securities class action litigation which was related to a software flaw that allowed outside developers to access personal data of 500,000 users of the Google Plus social media site was settled in February 2024 for $350 million, the Yahoo! cyber-related securities class action litigation was settled in March 2018 for $80 million while a motion to dismiss was pending, the Equifax data breach securities class action litigation was settled in 2020 for $149 million, and the Solar Winds data breach securities class action was settled in 2022 for $26 million.

It is far from clear whether these large settlements will lead to more frequent and successful securities class actions arising from large data breaches. Most of these securities class action lawsuits have been dismissed, primarily because the plaintiffs failed to sufficiently allege (i) the defendants acted with the requisite scienter (i.e., plaintiffs did not allege facts showing the defendants knew the size or impact of the breach at the time of the allegedly incorrect disclosures) , (ii) either a misstatement or omission of material facts, or (iii) loss causation (i.e., the misstatement or omission caused the company’s stock to be artificially inflated). The likelihood of these cases being dismissed increases if the company’s disclosures include detailed and specific cautionary statements about cyber risks and do not characterize the quality of the company’s cybersecurity. Despite the few large settlements described above, the general trend of courts dismissing cyber-related securities class actions continues to exist as evidenced by (i) the Ninth Circuit affirming on March 2, 2022 a District Court dismissal of a data breach-related securities class action against Zendesk, (ii) the Fourth Circuit affirming in April 2022 a District Court dismissal of a data breach-related securities class action against Marriott and its D&Os, (iii) a District Court in Virginia dismissing a cyber-related securities class action against Capital One in September 2022, (iv) District Courts in California dismissing cyber-related securities class actions against First American and Okta in September 2021 and March 2023, (v) a New York District Court dismissing most of the SEC’s cyber-related claims against SolarWinds Corp. in July 2024, and (vi) the SEC voluntarily dismissing in November 2025 its civil case against SolarWinds and its chief information security officer for failing to warn investors about the company’s lax cybersecurity standards prior to a massive data breach.

In a bizarre development which may signal heightened exposure for cyber-related claims by the SEC against D&Os, a cyber ransom gang filed in 2023 a whistleblower complaint with the SEC alleging a company that was hacked by the gang failed to disclose to the SEC the security breach and its impact on the company. The gang apparently intended to enhance its future negotiation leverage over other companies hacked by the gang.

Shareholder derivative lawsuits against directors and officers are another litigation response when a company suffers large cyber-related losses. However, this type of derivative litigation is also challenging for plaintiffs in light of the business judgment rule, the applicable state exculpatory statute for directors, and other state law defenses for the defendant directors and officers. But, a few cyber-related derivative lawsuits have recently settled or survived a motion to dismiss. Most notably, the Yahoo! derivative suit settled for $29 million, due in large part to the extraordinary number of people impacted by the breach (i.e., as many as 1.5 billion users) and the two-year delay in disclosing the breach. Other cyber derivative settlements are far smaller, often including a modest plaintiff fee award and the company agreeing to certain governance reforms. In October 2021, the Delaware Chancery Court dismissed a cyber-related derivative lawsuit involving the Marriott data breach.

The area of greatest potential exposure for directors and officers regarding cyber matters does not arise from acts or omissions by directors and officers prior to the attack, but rather from conduct of directors and officers once the attack is identified. Disclosures regarding the scope, effect and cause of the attack, and the response by management immediately following the attack, can potentially create either securities class action or shareholder derivative litigation. Therefore, companies should develop and implement long before a cyber attack actually occurs effective protocols and action plans that should and should not be done if a cyber attack against the company occurs. Careful advanced planning in this area can provide a unique opportunity to minimize the potential personal liability of directors and officers for post-attack conduct.

6. DEI Claims. In the last several years, an unprecedented number of so-called DEI (Diversity, Equity and Inclusion) claims were filed against companies and their directors and officers. Ironically, most of these claims were asserted against companies who are proactively addressed DEI concerns as opposed to companies who seemingly ignore the issues (often called “greenhushing”). Those proactive companies were often in a no-win situation because they were criticized for not doing enough (or misrepresenting the impact of what they are doing) or for implementing DEI initiatives that harmed the company’s financial performance or reputation.

The future of DEI-related investigations and litigation is very much in doubt under the Trump administration. On January 20 and 21, 2025, President Trump issue Executive Orders which terminated DEI policies and programs within the federal government and “encouraged” private sector companies to do the same, contending those policies and programs constitute illegal reverse discrimination. Numerous companies have announced their elimination of DEI initiatives both before and after those Executive Orders. For companies that continue DEI policies, the DOJ’s Civil Division announced in June 2025 one of its top priorities is to combat illegal discriminatory practices and policies by bringing DEI-related False Claims Act claims against companies that receive federal funding (in addition to criminal charges by the DOJ). As a result, DEI-related programs and claims have decreased dramatically, at least for now.

7. Climate Change Claims. Although climate change issues permeate many industries and generate a variety of legal concerns, D&O litigation has been largely immune to those issues.

On March 6, 2024, the SEC adopted highly controversial new rules requiring larger registered public companies to disclose a wide range of information related to climate change and greenhouse gas emissions information and risks. But in June 2025, the new Trump Administration announced its intent to withdraw those rules, creating uncertainty as to the type and extent of climate change disclosures public companies must make. In addition, in February 2026, the Trump administration announced the EPA was rescinding its 2009 finding that global warming caused by greenhouse gases endangers the health and welfare of people. As a result, the federal government’s efforts to curb or regulate climate change will likely be significantly reduced, and many states will become more active in addressing climate change. This shift to state regulation will create a complex patchwork of different (and probably conflicting) disclosure requirements and regulator restrictions/oversight and will likely give rise to a significant increase in climate-related litigation against both companies and directors and officers.

In part because of this uncertainty, directors and officers face challenging disclosure obligations and potential liability exposures under both the federal securities laws and some newly enacted state laws. For example, in October 2023, California enacted two far-reaching statutes requiring climate-related disclosures. The Climate Corporate Data Accountability Act requires greenhouse gas emissions data disclosure by all public or private entities doing business in California with gross annual revenues in excess of $1 billion. A second related statute requires companies with more than $500 million of gross annual revenues to develop a biennial report on its climate-related financial risks. In November 2025, the Ninth Circuit Federal Court of Appeals enjoined enforcement of this second statute (but not the first statute) pending an appeal to the Ninth Circuit of a case challenging the constitutionality of the statute. Other states have reportedly adopted climate change disclosure laws, such as Colorado, Florida, Illinois, Maine, Maryland, New Hampshire, Oregon and Utah. If and to the extent additional new laws and regulations are enacted by the federal government and other states relating to climate change disclosures, companies and the D&Os may soon be faced with nearly impossible and conflicting climate-related legal requirements which dramatically increase their liability exposures.

8. Executive Compensation. Although a board’s executive compensation decisions have typically not been overturned by courts consistent with the business judgment rule, the increasingly enormous size of some executive compensation arrangements have been reviewed by courts, with mixed results. On January 30, 2024 and again on December 2, 2024, the Delaware Chancery Court rescinded Elon Musk’s $55.8 billion compensation package following a 2022 trial in a derivative lawsuit on behalf of Tesla against Musk and the Tesla board. The Court concluded Musk’s personal relationships with the directors removed the board’s compensation decision from the business judgment rule. As a result, the defendant directors were required, but failed, to prove the “entire fairness” of the compensation package, even though 74% of the Tesla shares not held by Musk or his brother approved the compensation package. In December 2025, the Delaware Supreme Court reversed the Chancery Court ruling and reinstated the compensation plan approved by shareholders. Following Tesla’s subsequent reincorporation in Texas (see discussion below), Tesla shareholders approved on November 6, 2025 a far larger all-stock compensation package for Musk under Texas law, which could result in Musk receiving an estimated $1 trillion of Tesla stock if certain company performance milestones are met.

Similarly, a Federal District Court in New York in February 2024 dismissed a securities class action lawsuit against Apple and its directors and officers alleging the defendants misrepresented information about very large performance-based stock compensation awards to Tim Cook (Apple’s CEO) and other senior executives. The Court concluded the plaintiffs did not plausibly allege any actionable misrepresentations regarding the value of the awards.

9. Reincorporation Outside of Delaware. For decades, a large majority of public companies in the U.S. have been incorporated in Delaware, which has a highly regarded business court system and the largest body of governance case law in the nation. Delaware’s dominance as the preferred domicile for public companies was not seriously questioned or challenged until 2024 when, in response to the Delaware Chancery Court rescinding Elon Musk’s $55.8 billion compensation package with Tesla, Musk sought and obtained approval from both Tesla and Space X shareholders to reincorporate those companies from Delaware to Texas. As a further rebuke of Delaware, Musk also reincorporated his brain implant company Neuralink from Delaware to Nevada. That strategy to leave Delaware as the state of incorporation was highly publicized, resulting in several other companies moving out of Delaware to either Texas or Nevada, including Meta, TripAdvisor, The Trade Desk, Tempus AI, Robolox, Sphere Entertainment, Zio Oil and Gas, Pershing Square Capital, Coinbase, Dropbox and Dell. For the same reason, Exxon Mobile reincorporated from New Jersey to Texas in 2026. In July 2025, the reportedly largest venture capital firm in the U.S. (Andreesen Horowit) announced it was reincorporating in Nevada from Delaware and encouraged all its current and prospective portfolio companies to do likewise. The VC firm observed that the Delaware Chancery Court was losing its “reputation for unbiased expertise,” had “injected an unprecedented level of subjectivity into judicial decisions,” and “introduced legal uncertainty into what was widely considered the gold standard of U.S. corporate law,” in contrast to Nevada, which is building a “technical, non-ideological forum for resolving business disputes.” In total, at least 29 companies reportedly reincorporated out of Delaware in 2025.

There are numerous legal and financial implications to such a reincorporation. But Texas and Nevada statutory laws are clearly more protective of directors and officers than Delaware. For example, the Nevada liability exculpation statute applies to breach of any fiduciary duty, including the duty of loyalty (unlike Delaware law). Under Texas law, shareholder derivative suits are prohibited if independent directors decide prosecuting the lawsuit is not in the company’s best interest, unlike Delaware law which allows shareholders to avoid or circumvent the directors’ decision under certain circumstances. More importantly, Texas law permits companies to include provisions in their certificates of formation or bylaws that require a shareholder filing a derivative lawsuit to own a designated minimum percentage of the company’s outstanding shares (up to 3%). In addition, both Texas and Nevada permit a company to indemnify settlements in derivative lawsuits against directors and officers, unlike Delaware. These differences in state laws may result in D&O insurers treating companies who reincorporate out of Delaware to these or other comparable states more favorably when underwriting their D&O insurance.

Efforts to reincorporate outside Delaware have been criticized by shareholders who contend the reincorporation is motivated by the company’s directors’ attempt to insulate themselves from litigation. For example, in February 2024, the Delaware Chancery Court denied a motion to dismiss such a lawsuit against directors of Trip Advisor who approved the company’s reincorporation from Delaware to Nevada. But the Delaware Supreme Court reversed that decision on February 4, 2025, ruling that the directors’ decision to reincorporate outside of Delaware is protected by the business judgment rule. Perhaps in anticipation of that ruling, the Delaware Chancery Court in November 2024 dismissed claims against directors of The Trade Desk, Inc. related to the company’s reincorporation in Nevada. The dismissal was in large part due to a majority of company shareholders approving the reincorporation. Despite these early dismissals, reincorporation outside of Delaware continues to be challenged in Delaware courts, including a 2025 shareholder lawsuit related to the reincorporation of Dropbox from Delaware to Nevada.

This exodus from Delaware, which has become known as “DExit,” prompted Delaware to enact new legislation (Senate Bill 21) in March 2025 intended to dissuade companies from leaving Delaware. Among other things, the new legislation adopts new safe harbor procedures for approving transactions with directors, officers or controlling shareholders, establishes criteria for determining the independence and disinterestedness of directors and shareholders, and limits the materials a stockholder may inspect pursuant to a books and records demand. On February 27, 2026, the Delaware Supreme Court upheld the constitutionality of Senate Bill 21.

Both Texas and Nevada enacted new legislation in May 2025 for the express purpose of rebutting Delaware’s new legislature. This bidding war among states for the most protective corporate laws has introduced creative new concepts that other states may follow. For example, Texas’ Senate Bill No. 29, which was signed into law on May 14, 2025, and Senate Bill No. 1057, which was signed into law on May 19, 2025, among other things, codifies the business judgment rule (including specific requirements for rebutting the business judgment presumption), allows corporations to impose a minimum ownership requirement for shareholders to bring a derivative lawsuit, allows corporations to waive jury trials in shareholder lawsuits, restricts the type of materials that must be produced in response to a books and records demand by shareholders (including the exclusion of emails and other electronic communications from “records” that must be produced), and allows any nationally listed corporation based in Texas to impose a minimum stock ownership requirement for a shareholder to submit proposals for adoption at a shareholders meeting. Similarly, the new Nevada legislation allows corporations to waive jury trials in shareholder lawsuits, narrowly defines fiduciary duties owed by controlling shareholders, limits the liability of controlling shareholders, allows disinterested directors to approve a transaction with a controlling shareholder, and affords controlling shareholders liability protection similar to the Nevada business judgment rule for directors and officers.

10. Artificial Intelligence. Artificial intelligence (AI) will likely have a profound impact on the liability exposure of directors and officers in future years, similar to AI’s enormous impact on businesses and society in general. Virtually every company is being impacted, and will continue to be impacted, in unprecedented and transformative ways both internally and externally by AI. That environment creates significant new demands on directors and officers to manage their company’s rapidly changing AI-related opportunities and risks and properly disclose AI-related information to investors, regulators and other constituents. D&O litigation which challenges AI decisions by directors and officers will likely become rampant and expensive to defend and resolve.

History has repeatedly shown that this type of incredible business evolution produces not only some wildly successful companies, but also many disappointing or failed companies which become targets of expensive D&O claims. The number of companies potentially impacted by AI risks and thus exposed to AI-related D&O claims is very large and growing. According to a 2025 report by The Conference Board, 72% of S&P 500 companies disclosed in public filings at least one material AI risk in 2025, up from 12% in 2023. These increased risk disclosures were most prominent in the financial, healthcare, industrial, IT and consumer-facing sectors. The identified risks primarily involve reputational, cybersecurity and regulatory concerns. When AI impacts that many companies, the likelihood of D&O claims seems inevitable. Although the legal theories underlying those claims will probably not be new, the frequency and severity of those claims may be alarming for companies in virtually any industry.

Like D&O claims in other contexts, AI-related D&O claims will most likely consist primarily of securities class actions (which focus on the company’s AI-related disclosures) and shareholder derivative suits (which focus on AI-related management decisions). But, a variety of other types of D&O claims will also likely be filed. Each of those types of claims are addressed below.

a.              Securities Claims

AI-related securities class actions will likely be the most common type of AI-related D&O claims. Investors currently appear to have “irrational exuberance” for AI-related companies, much like the .com bubble in the late 1990s for internet-related companies. As large numbers of investors become disappointed in their AI-related investments, significant securities class action claims against D&Os will likely occur.

These securities class actions will most likely focus on three types of alleged wrongdoing:

• A company overstating or exaggerating its AI capabilities or its ability to successfully commercialize those capabilities (i.e., “AI-washing”).
• A company failing to fully disclose the material risks associated with its AI strategies and business, including risks from competitors, changing technology, rapid industry evolution, claims by customers, and claims involving the company’s huge AI-related capital expenditures.
• A company attributing internal business decisions (such as workforce reductions or restructurings) to AI in order to cover up non-AI financial or operational issues.

AI-related securities lawsuits against companies and their directors and officers are already being filed, albeit in limited numbers so far. For example, seventeen AI-related securities class actions were filed in 2025, which is about double the number of such cases in 2023. Most of these lawsuits allege the defendants overstated the use or effectiveness of AI technology in their business, and target a wide variety of companies, including Upstart (an AI lending platform), Zillow (developer of the Zillow Offers AI tool which provides predictive pricing information for buyers and sellers of houses), Innodata (an AI-enabled software platform company), Evolv Technologies Holdings (developer of AI-based weapons detection products for security screenings), UiPath (robotic process automation tool manufacturer with supplemental AI-powered products), Oddity Tech Ltd. (cosmetics internet platform which purportedly uses AI-based technologies to target consumer needs), and GitLab (an AI developer).

In the first half of 2026, 13 AI-related securities class actions were filed, including cases against high-tech giants Microsoft and Oracle. In the AI-related securities class actions filed in 2024 and 2025, courts granted motions to dismiss in whole or in part in 12 cases, and denied motions to dismiss in only two. Those dismissals were based on common securities litigation defenses, such as failure to adequately allege scienter or materially false statements (as opposed to mere puffery or opinions).

b.              Shareholder Derivative Lawsuits

AI-related shareholder derivative lawsuits against directors and officers have been less common to date. These lawsuits allege breach of the defendants’ fiduciary duties in connection with AI matters, such as failure to properly oversee the company’s AI risks or the failure to properly use AI in the board’s operations. A 2025 Pricewaterhouse Coopers directors survey revealed that 35% of the respondents said their boards have incorporated AI into the board’s exercise of its oversight responsibilities. Injecting these untested and new resources into a company’s governance and operational infrastructure will inevitably result in unexpected and potentially harmful consequences, which can lead to mismanagement claims against directors and officers.

Examples of this type of mismanagement claim may include:

• Directors or officers may rely on AI in making a business decision that is harmful to the company, prompting shareholder allegations that such reliance was unreasonable without further investigation into the reliability, capability and accuracy of the AI systems used.
• Directors or officers may fail to use commonly accepted and uniquely applicable AI systems to assist in their decision process, resulting in less informed decisions when compared with other companies under similar circumstances.
• Directors and officers may authorize an expensive, resource-intensive but ineffective strategy to implement, use or market AI, resulting in significant long-term losses and jeopardizing the company’s financial health and reputation.
• Directors and officers may implement inadequate internal controls regarding AI issues resulting in significant claims against the company, including intellectual property infringement, invasion of privacy, defamation and similar tort claims.
• Directors and officers may fail to identify or respond to company risks created by advisors, vendors, suppliers or competitors using (or misusing) AI technology.
• Directors and officers may fail to stay abreast of rapidly changing AI technologies or recognized AI best practices.
• Directors and officers may knowingly or recklessly train its AI tools using copyrighted or other legally protected intellectual property.

As an example of an AI-related derivative suit, Microsoft directors and officers were sued in a 2026 derivative suit which alleged the defendants (i) misled shareholders regarding the company’s AI business strategy and products, and (ii) caused the company to violate copyright and intellectual property laws by training its AI software on copyrighted works for which the company did not possess lawful licenses.

c.              SEC Claims

In addition, the SEC has been clear that it intends to carefully monitor AI-related disclosures by companies, using existing and well-recognized securities law concepts such as (i) are the AI-related disclosures accurate and complete; (ii) does the company have a reasonable basis to make the AI-related assertions; and (iii) are the material AI-related risks fully disclosed. This oversight has already resulted in several enforcement actions against companies and their executives for misrepresenting AI-related matters, including the April 2025 indictment and parallel SEC lawsuit against the founder and CEO of Nate, Inc. for raising $42 million from investors by misrepresenting the company’s app used AI technology to complete online shopping purchases when in fact the purchases were completed manually by overseas workers.

d.              AI Specific Laws

Numerous states have enacted or are proposing laws regulating AI in numerous contexts, including the use of AI in various commercial settings, in employment and HR matters, in media and other consumer-focused content, and in healthcare. These laws prohibit or seek to mitigate, for example, unfair business practices, biased decision making, false or misleading digital replicas, deceptive content, and unauthorized use of data. There is little consistency among these state laws, resulting in a challenging patchwork of regulations for companies operating in multiple states. The Trump administration is proposing a uniform set of federal AI regulations which would preempt the many state laws and would impose relatively minimal prohibitions.

Although these laws primarily regulate company behavior, it seems likely the laws will be used either directly or indirectly to fuel D&O claims related to AI matters.

e.              Other Types of Claims

A myriad of other types of AI-related claims will likely be filed with varying degrees of frequency. Examples include intellectual property infringement claims alleging the AI algorithms used third party protected information; employment claims alleging wrongful termination or misrepresentations in connection with a company’s downsizing or reconfiguration of its workforce cause by AI; cybersecurity claims related to deepfake scams; privacy claims arising from use of AI; discrimination claims based on algorithmic bias; antitrust claims alleging price fixing and collusion based on AI algorithms and data sharing; and claims by state regulators under newly enacted state AI regulations.