In the following guest post, Sarah Abrams reviews the SEC’s recent updates to its Enforcement Manual and considers the directors’ and officers’ liability implications. My thanks to Sarah for allowing me to publish her article as a guest post on this site. Here is Sarah’s article.

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On February 24, 2026, the SEC announced that it had updated its Enforcement Manual.  The Manual offers detailed procedural guidance for Enforcement Division staff, and although it does not create enforceable rights, it provides a blueprint for how the current SEC’s enforcement investigations and actions may unfold. These updates matter because they compress timelines and elevate expectations for advocacy. The following discusses Manual changes which stood out and potential D&O underwriting implications.  

Ensuring a Uniform Wells Process

Historically, the timing and procedural approach of Wells practice could vary across matters and agency teams. For D&O underwriters, the Wells process involves risk because Wells submissions are discoverable and may be used by the Commission in subsequent actions or by third parties in accordance with applicable law.

Under the updated Manual, SEC staff must obtain approval at the Associate Director/Unit Chief level and from the Office of the Director before issuing a Wells Notice, a formal letter from the U.S. Securities and Exchange Commission (SEC) or FINRA staff notifying individuals or firms that a regulatory investigation has concluded and that enforcement action is recommended for alleged violations of securities laws.

The Manual requires SEC staff to obtain approval before proceeding to recommend an enforcement action without issuing one. Also, a Wells Notice should identify the specific charges and relief staff preliminarily plan to recommend, and it must advise that the recipient may submit a written or video statement within the set limits (ordinarily the four‑week window, unless timing constraints warrant another approach).

The Manual further states that Wells recipients will “ordinarily” get four weeks to submit a Wells response, and staff guidance for what the SEC finds most useful: submissions anchored in the record; candid treatment of adverse evidence; tight engagement with the elements of the proposed charges; and forthright discussion of litigation risk or policy/programmatic concerns. In addition, Wells meetings will be scheduled within four weeks of the submission and include a senior Division leader.

This standardized Wells timetable may pull claim notice and spend forward, concentrating the defense intensity into the first ~60 days after a Wells Notice. The updated timeline may also increase tenders under “formal investigation,” “Wells notice,” or “potential enforcement” triggers. Because the timeline is compressed, this may lead to an earlier use of experts (accounting, market analytics, cyber forensics) and steeper early exposure to any formal investigation coverage available.

Finally, the updated Manual prescribes what makes a “helpful” Wells submission (‑anchored analysis, engagement with adverse evidence, and frank discussion of legal and program risks). This may reduce outcome variability across cases and impact on the quality-of-response bar for Wells’ recipients.

As a result of the Manual updates to the Wells process, D&O underwriters may want to consider governance maturity, documented controls, escalation, and remediation capacity, because those capabilities may impact cooperation credit and penalty outcomes under the SEC’s refreshed framework.

Simultaneous Consideration of Settlements and Waiver Requests

In the updated Manual the Commission restores its prior practice of permitting a party settling with the SEC to request simultaneous consideration of the settlement and any waiver from automatic disqualifications (e.g., Rule 506 “bad actor” consequences which include being barred from raising private capital) that would flow from the resolution. Under the renewed process, the party settling with the SEC will be able to see both the enforcement terms (penalties, undertakings, etc.) and the SEC’s decision on whether it will grant the necessary waiver at the same time.

The SEC frames this approach as enhancing transparency. Previously, parties could settle only to find out later that key waivers were not granted, which could lead to unexpected compliance burdens, business disruptions, or financing impediments. Under the updated manual, if waiver is denied while a settlement is accepted, the truncated timeline (five days) allows a company to decide whether to go forward with the settlement regardless of the penalties, or to withdraw from the settlement and potentially face a litigated action Parallel DOJ engagement remains.

For D&O underwriters, the updated settlement‑and‑waiver process introduces both improved predictability and heightened severity risk. On one hand, the SEC’s simultaneous consideration of settlements and waivers eliminates the historical uncertainty in which a company would settle first only to discover later that it had been disqualified from critical activities, bringing greater certainty to severity modeling and helping underwriters more accurately assess potential downstream exposure.

Coordinating with the DOJ

The Manual underscores that the SEC routinely coordinates with the DOJ and other authorities through established discussion and access‑request channels, so anything said to SEC staff can be reviewed by prosecutors in a parallel criminal matter. As a result, asserting the Fifth Amendment (the right to remain silent) in SEC testimony may impact on civil liability, where courts could draw adverse inferences from taking the Fifth.

D&O underwriter exposure may thus increase with advancement of defense expenses until a final, non‑appealable adjudication of fraud or willful misconduct and a DOJ investigation can often extend the matter’s duration, even if there is settlement with the SEC.

Discussion

For D&O underwriters, the above developments may result in earlier tenders, steeper front‑loaded defense spend, and perhaps increased scrutiny over an insureds’ governance rigor, investigation readiness, and escalation culture.

The SEC’s announcement and updates to its Enforcement Manual signal its intent to create an enforcement environment marked by greater speed, tighter coordination, and what appear to be higher expectations for developed advocacy. A more structured Wells process compresses the timeline for response and with the intent to elevate the quality bar for submissions, while simultaneous settlement‑and‑waiver consideration adds predictability but also introduces short‑fuse decision points that may escalate costs if parties pivot away from settlement. Meanwhile, the Manual’s explicit recognition of routine parallel DOJ engagement underscores that civil matters can quickly acquire criminal dimensions, prolonging the lifecycle of a claim and intensifying defense burdens.  

How aggressively the SEC applies the Manual’s outlined procedural changes remains to be seen, including how the current SEC’s enforcement landscape continues to play out.

While there have been dramatic developments in recent days related to the Trump administration’s tariff-policies – including the U.S. Supreme Court striking down the administration’s IEEPA tariffs and the Trump administration announcement of new across-the-board Section 122 tariffs – the uncertainty companies have faced related to the tariffs continues, and indeed may even have been exacerbated. A new securities suit filed earlier this week against Lakeland Industries, a company whose operations and financial results were impaired by “tariff headwinds,” illustrates how the continuing tariff uncertainty may translate into corporate and securities litigation in the weeks and months ahead. A copy of the February 23, 2026, Lakeland Industries complaint can be found here.

Background

Lakeland manufactures and sells protective clothing for industrial uses. The company employs a “small, strategic, and quick” (SSQ) mergers and acquisitions strategy to try to grow revenues. In 2023 and 2024, the company acquired businesses in New Zealand (“Pacific Helmets”), as well as in Italy and Romania (collectively, “Jolly).

According to the subsequently filed securities class action complaint, the company represented to investors that it would realize substantial benefits from its acquisitions strategy. Following the onset of tariff-related market uncertainties in 2025, the Company, the complaint alleges, said that it was “well-positioned to weather the tariff-related headwinds while continuing to pursue its SSQ M&A strategy.” The complaint further alleges that “throughout the Class Period, notwithstanding tariff-related headwinds, Defendants made repeated assurances regarding their visibility into Lakeland’s future performance in upcoming quarters, consistently expressing confidence in their financial guidance.”

In providing guidance in April 2025, the defendants, according to the complaint, communicated that “notwithstanding tariff-related uncertainties, they had visibility into Lakeland’s future performance by virtue of various purported positive market signals they observed and their widely touted tariff mitigation measures.”

In July 2025, when the company announced results falling short of prior guidance as a result of “shipment timing” and “tariff-related delays,” the company cited “elevated freight costs resulting from tariff-related inventory build,” among other things. The company’s share price declined.

In September 2025, when the company again announced disappointing results, the company cited, among other things, “continued delays in purchasing decisions due to tariff uncertainty.” The company’s share price declined further on this news.

In December 2025, the company again reported disappointing results, due, among other things, to “tariff headwinds.” The company also withdrew its prior guidance because the challenges “have affected our forecasting ability.” That same day the company announced that its CFO’s employment had been terminated. The company’s share price declined nearly 40% on this news.

The Lawsuit

On February 23, 2026, a plaintiff shareholder filed a securities class action lawsuit in the Southern District of New York against the company and certain of its directors and officers. The complaint purports to be filed on behalf of investors who purchased the company’s shares between December 1, 2023, and December 9, 2025.

The complaint alleges that during the class period the defendants made false or misleading statements or failed to disclose that: “(i) Lakeland was experiencing significant sustained issues with its Pacific Helmets and Jolly businesses, including, inter alia, shipping-related delays, production issues, and slower than expected rollout of new products; (ii) accordingly, Defendants overstated the anticipated and actual positive impact of their businesses on Lakeland’s financial results, as well as the overall strength and quality of Pacific Helmets’ and Jolly’s respective operations; (iii) Lakeland’s business and financial results were significantly deteriorating because of, inter alia, tariff-related headwinds and timing, certification delays, and material flow issues in its acquired businesses; (iv) accordingly, Defendants overstated the strength of their tariff mitigation measures and SSQ M&A strategy; (v) as a result of all of the foregoing issues, Defendants’ financial guidance was unreliable; and (vi) as a result, Defendants’ public statements were materially false and misleading at all relevant times.”

The complaint alleges that the defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The complaint seeks to recover damages on behalf of the plaintiff class.

Discussion

Since the Liberation Day tariffs were first announced in April 2025, business conditions related to the tariffs has been characterized by uncertainty, as the announced tariffs have been abruptly changed, increased, or altered. The tariff-related impacts and business uncertainties have in at least some cases led to securities class action lawsuit filings, as discussed, for example, here and here.

The most recent tariff-related developments – including the Supreme Court’s decision striking down the IEEPA tariffs, and President Trump’s subsequent announcement of different, across-the-board but temporary tariffs — magnify the uncertainty.

This complaint demonstrates how tariff-related uncertainties can hamstring a company, as well as how tariff-related “headwinds” can exacerbate business challenges a company is otherwise facing. The factual allegations also show how unanticipated tariff-related developments can cast prior tariff related statements into a harsh light, particularly when viewed with the benefit of hindsight.

The recent tariff-related developments, including the U.S. Supreme Court’s decision, do nothing to alter these challenging business operating conditions. If anything, as noted above, the recent developments add to the uncertainty. The ongoing and new tariffs will pose many of the same challenges as this company faced under the circumstances alleged here. And like the company here, companies that are already facing other businesses challenges will find their challenges magnified by the tariff-related uncertainty.

It is unclear what may lie ahead for the Trump administration’s tariffs, especially since the latest round of Section 122 tariffs are temporary (because subject to a 150-day time limit). What does seem clear is that the kind of uncertainty this company experienced seems likely to continue to affect many businesses going forward. In at least some cases, it seems likely that tariff-related headwinds and setbacks will not only affect operating performance and financial results but may also translate into corporate and securities litigation. It seems likely that as companies struggle to deal with tariff headwinds and uncertainty, we will see further tariff-related corporate and securities litigation.

The D&O Diary was on assignment in Europe last week, with a first stop in Dublin for client meetings, followed by a long weekend visit to Paris. February is not the best time to visit Europe, as it can be cold and dark, and on this visit both cities were kind of damp, as well. But notwithstanding the generally gloomy and occasionallly wet weather, it was a great visit overall.

Dublin is such a great place to visit, even in the winter gloom. It is so pleasantly walkable and full of life. During our short Dublin visit, we did enjoy occasional breaks of sunshine, which helped a little bit to lift the winter gloom.

Our visit to Dublin was short, and we were soon off for a weekend visit to Paris. It is surprisingly inexpensive and easy to travel from Dublin to Paris — the air fare was just a little more than 100 euros. In a scene change so dramatic it almost gave us whiplash, we quickly found ourselves in Paris and on an RER train from Charles de Gaulle airport on our way into the center city.

After our mandatory arrival walk through the Jardin du Luxembourg, our next stop was a visit to Notre Dame. I saw the renovated and re-opened church on my prior Paris visit, but my wife had not seen it, so we had to stop and see it.

On Saturday morning, we had a major project, which was to visit the Musée d’Orsay, for a very specific objective. Over the winter, I had read Sue Prideaux’s excellent one-volume biography of Paul Gauguin entitled Wild Thing. I had never really clicked with Gauguin’s art before, but reading the biography left me wanting to see his work again, particularly the paintings from his Tahitian travels. The Musée d’Orsay has an excellent collection of his paintings and sculptures, particularly from Gauguin’s time in Tahiti. It was great to have a chance to see and consider the paintings after having read the book. The paintings’ vibrant colors had always been apparent; closer consideration revealed the depth and even the mystery of the work. (I highly recommend the book even if you will not have an immediate opportunity to study Gauguin’s art in person.)

The museum’s Fifth (top) floor is full of some of the most famous artwork from the Impressionist and Post-Impressionist era. The galleries with the works of Van Gogh, Monet, and Cezanne were absolutely packed while we were there. The separate galleries with Gauguin’s work, located at the end of a long series of rooms with Impressionist art, were relatively uncrowded, allowing plenty of opportunity for study and contemplation.

On Sunday morning, we had a different project, which required us to visit the Cimetière de Passy, located near the Place de Trocadéro, across the river from the Eiffel Tower. Admittedly, the cemetery is not on many tourist itineraries. Our purpose in visiting was to see the grave of the impressionist painter, Édouard Manet. My desire to see his grave arose from reading yet another book over this past winter, Sebastian Smee’s Paris in Ruins: The Siege, The Commune, and the Birth of Impressionism. The book tells the story of Paris during the Franco-Prussian war and its immediate aftermath, from the perspective of two of the key painters of the Impressionist era, Manet and Berthe Morisot. The two artists had a deep and enduring relationship, in which each influenced the other artistically. Morisot would go on to marry Manet’s brother, and both the brother and Morisot are buried next to Manet. (I have often thought there is the plotline here for an interesting movie in the two artists’ story.)

The only problem with visiting Paris is that eventually you have to leave. We were off on Monday morning on the Eurostar train for London. The thing about leaving Paris is that even as you are just departing, you are already thinking about when you will return.

Following the Supreme Court’s recent decision striking down President Trump’s IEEPA tariffs, many companies will now have to consider whether and how they might seek a refund. Indeed, the first of what undoubtedy will be many refund actions has already been filed. In the following guest post, Sarah Abrams examines the refund-related questions corporate executives now face, and considers the D&O risks involved. My thanks to Sarah for allowing me to publish her article as a guest post on this site. Here is Sarah’s article.

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In the wake of the U.S. Supreme Court’s February 20, 2026 decision in Learning Resources v. Trump, which held that the International Emergency Economic Powers Act (IEEPA) did not authorize the sweeping tariffs imposed during the second Trump administration, the D&O Diary queried what the court’s decision might mean for D&O exposure. An immediate consideration for executive teams, as reported on by The Wall Street Journal (WSJ), is what action (if any) should be taken by companies impacted by Liberation Day tariffs to seek refunds.

The following discusses three areas of potential D&O risk stemming from the tariff refund question created by the Learning Resources decision: whether to disclose that tariff refunds are being sought; whether to monetize tariff refund claims; and the potential impact of pricing modifications implemented to blunt the impact of IEEPA tariffs.

Seeking a Tariff Refund?

The Supreme Court’s majority decision in Learning Resources is silent on the subject of refunds. Importantly, the published opinion does not:

• Directly explain whether the United States must refund tariffs collected under an unconstitutional tariff regime.
• Describe a specific mechanism for how refunds should be processed or who is entitled to them.
• Provide guidance on administrative or judicial procedures for refund claims.

Instead, the opinion’s legal analysis addresses only the statutory issue of whether IEEPA authorizes tariffs. Having concluded that it does not, the Court remanded without addressing remedies such as restitution or refunds. Thus, tariff refund questions are left to lower courts, the executive branch, or Congress.

On February 23, 2026, a group of 22 U.S. Senate Democrats introduced legislation that would the administration to fully refund all of the revenue, with interest, collected from IEEPA tariffs within 180 days. However, the bill would need to go through committee review and a decision on consideration would likely take time.  In addition, House of Representatives Speaker Mike Johnson told reporters that, at this time, the Republican-controlled House would not get involved in returning tariff revenue.

As a result, for executives and public companies, whether to seek a refund in court, with no imminent legislation, may quickly become a disclosure question. Like certain organizations with leadership interviewed by the WSJ, if management believes a substantial tariff recovery is warranted, investors may view that recovery as a material asset. Of note, FedEx filed a lawsuit with the U.S. Court of International Trade on Monday February 23, 2026, seeking repayment of IEEPA tariffs paid by the company to the government as the importer of record.

However, if management believes recovery is unlikely or limited, that too may affect market valuation. Given that the probability of recovery remains uncertain, particularly because tariff refund fights may have to be litigated, along with the potential for a political response from the administration, public messaging by corporate executives on tariff refunds may, in and of itself, create D&O exposure.

Statements about refund prospects may later appear overly optimistic or pessimistic.  Earnings calls, SEC filings, and investor presentations that characterize refunds as “expected,” “possible,” or “unlikely” may become focal points if share prices move materially on subsequent developments.  Thus, securities litigation risk does not seem theoretical. If stock prices increase based on perceived refund upside and later fall when recovery proves elusive, plaintiff shareholders may allege that the company overstated its likelihood of success. Conversely, if corporate management fails to discuss refund potential at all and competitors recover significant sums, investors may question whether the company failed to pursue or disclose a material opportunity.

Monetization of Refund Claims

One such tariff refund strategy reported on by the WSJ included the sale or monetization of refund claims to hedge funds or litigation finance vehicles. Rather than waiting years for uncertain administrative or judicial outcomes, a company could convert the contingent asset into immediate liquidity. Following the Learning Resources decision, such a strategy may appeal to boards and executive teams seeking certainty in at least some return of capital.

But from a D&O risk perspective, such monetization may create its own hazards.  Particularly with respect to the valuation of an anticipated refund. If a company sells a refund claim at a significant discount and subsequent rulings validate full recovery, shareholders may allege that directors failed to maximize corporate value. Securities plaintiffs could then frame the decision as corporate waste or breach of fiduciary duty, particularly if the sale occurred without independent valuation, fairness review, or robust documentation of deliberation.

The timing of tariff refund monetization may also draw scrutiny. A transaction executed under perceived urgency, like immediately after the Learning Resources decision, and in the absence of clear regulatory guidance, may appear improvident if the legal landscape later stabilizes in favor of refund claimants. Thus, corporate disclosure may again become a central issue.

If management characterizes monetization as risk-reducing or value-enhancing, and later developments suggest otherwise, securities plaintiffs may argue that the company misrepresented the transaction’s rationale or potential upside foregone. However, independent advisors, fairness opinions, and documented board engagement in considering whether to monetize refund claims may be levered as defensive tools in future litigation.

Pricing Decisions and the Consumer Refund Overlay

The refund issue does not necessarily stop at the importer-of-record level. Many companies increased prices or imposed surcharges during the tariff period, publicly attributing those increases to tariff-driven cost pressures. Earnings calls may have referenced tariffs as a primary margin headwind. Thus, now that the IEEPA tariffs have been declared unlawful, and duties may be refunded, customers, distributors, retailers, and end users are likely to ask whether those price increases should now be reversed.

State unfair and deceptive trade practice statutes are often broadly framed and require only that a representation be misleading or unfair, not intentionally fraudulent. If a company prior to the Learning Resources decision tied price increases explicitly to IEEPA tariffs and then retains refunded amounts without adjustment, potential plaintiffs may allege that the initial pricing justification was incomplete or misleading. 

While consumer protection claims may not fall squarely within traditional D&O coverage, they can generate derivative suits alleging that boards failed to anticipate or mitigate reputational and regulatory risk. In addition, the impact of anticipated consumer actions seeking refunds for pricing increases may influence corporate budgets and reported revenue, causing scrutiny from shareholders.

Conclusion

Ultimately, what began as a trade law ruling may evolve into a governance stress test. The Learning Resources decision removed the statutory foundation for the tariffs, but it did not resolve the financial, political, or procedural uncertainty surrounding refunds. In that vacuum, executive judgment, board process, and public disclosure may impact whether companies affected by tariffs will face shareholder litigation.

Whether corporate leadership chooses to pursue refunds, monetize them, retain pricing adjustments, or recalibrate messaging, each path carries potential hindsight scrutiny. As the WSJ reporting makes clear, executive teams are actively weighing these choices now. From a D&O exposure perspective, the relevant questions may extend beyond whether refunds will be paid, to whether the strategy surrounding those refunds is deliberated appropriately, documented thoroughly, and publicly communicated.

Last Friday, the U.S. Supreme Court issued its much-anticipated ruling in the case challenging the tariffs President Trump imposed in reliance on the International Economic Emergency Powers Act (IEEPA). By a 6-3 majority, the Court ruled in Learning Resources v. Trump that the IEEPA does not authorize the President to impose tariffs. However, even though the Court has now ruled, questions and uncertainty remain. As discussed below, the continuing questions have important implications for companies’ tariff-related D&O risk. The Court’s February 20, 2026 opinion can be found here.

The Supreme Court’s tariff decision involves two consolidated cases in which small businesses (as well as several states) challenged President Trump’s authority under the IEEPA to impose tariffs. Readers interested in the factual background and procedural history of the Learning Resources case should refer here.  The Court heard oral argument in the case in November 2025.

On February 20, 2026, in a 21-page opinion written by Chief Justice John Roberts for a 6-3 majority, the Court ruled in favor of the parties challenging the tariffs. However, not all of the Justices who voted with the majority joined all parts of the Chief Justice’s opinion. In addition, several Justices wrote separately, in the form of concurring and dissenting opinions. Inclusive of the Chief Justice’s majority opinion, there were a total of seven separate opinions issued in connection with the Court’s decision. The separate opinions taken collectively run to some 170 pages.

The Trump administration had argued in support of the tariffs that the IEEPA grants to the President of the authority to “regulate … importation.” As the Chief Justice’s majority opinion puts it, paraphrasing the Trump administration’s argument, “The President asserts the extraordinary power to unilaterally impose tariffs of unlimited amount, duration, and scope,” adding that “in light of the breadth, history, and constitutional context of that asserted authority, he must identify clear congressional authorization to exercise it.”

Having identified these questions under the IEEPA, the Chief Justice’s opinion then states:

IEEPA’s grant of authority to “regulate . . . importation” falls short. IEEPA contains no reference to tariffs or duties. The Government points to no statute in which Congress used the word “regulate” to authorize taxation. And until now no President has read IEEPA to confer such power. We claim no special competence in matters of economics or foreign affairs. We claim only, as we must, the limited role assigned to us by Article III of the Constitution. Fulfilling that role, we hold that IEEPA does not authorize the President to impose tariffs.

Chief Justice Roberts’s opinion then turns to address the question whether or not the “major questions doctrine” also served as a further basis on which to hold that the President lacked authority to impose the tariffs. The major questions doctrine holds that “clear congressional authorization” is necessary to authorize presidential actions regarding significant issues.

The Chief Justice’s opinion states that there is no such authorization here, nor is there a foreign-affairs exception applicable here that would uphold the President’s authority to impose the tariffs even in the absence of clear authorization. However, only Justices Barrett and Gorsuch joined this portion of the Court’s opinion – meaning that the Trump tariffs were struck down only on the basis that the President lacked authority under the IEEPA, not on the separate ground that major questions doctrine barred the President’s exercise of authority to impose the tariffs.

The various concurring and dissenting opinions addressed different aspects of the Court’s rulings. Justice Gorsuch’s 46-page concurring opinion largely supports the Chief Justice’s analysis of the major questions doctrine, and address issues concerning the separation of powers under the U.S. Constitution. Justice Kavanaugh’s 63-page dissent argues, contrary to the majority holding, that the President has the power under the language of the IEEPA to impose the tariffs, and that the major questions doctrine does not apply to preclude the President’s exercise of Congressionally delegated authority to impose tariffs.

Discussion

Anyone attempting to work through the various Justices’ opinions in the Learning Resources case will quickly understand why it took so long for the Court to rule following the November oral arguments in the case. The various Justices’ views are all over the place. Anyone wanting a clear road map through the Justice’s various opinions will want to read the SCOTUSblog’s February 20, 2026 “breakdown” of the opinion, here.

Where does the Court’s ruling leave us? Well, we now know that the President lacked authority under the IEEPA to impose most of his Liberation Day tariffs. That means, as a practical matter, that the U.S. Government collected tariffs that were imposed without a legal basis. Many companies will now seek refunds for tariffs that were imposed without a legal basis — or at least consider doing so. The estimates vary, but many sources suggest that the government has collected $130 billion or more under the President’s IEEPA tariff program. As Justice Kavanaugh observes in his dissent, the majority opinion does not address the administrative issues the refund efforts could produce, a process Kavanaugh notes is likely to be a “mess.”

One thing is clear, and that is that the Court’s ruling in the Learning Resources case does not mean the end of the Trump tariffs. For starters, not all of the tariffs imposed under the second Trump administration were instituted in reliance on the IEEPA; as discussed here, industry-specific tariffs on steel, aluminum, lumber and automotives, were imposed under a different law, section 232 of the Trade Expansion Act of 1962. In other words, and at least for now, there are at least some Trump tariffs that remain in place and in force, notwithstanding the U.S. Supreme Court’s ruling in the Learning Resources case.

More to the point, in the immediate aftermath of the Supreme Court’s ruling, and seemingly as an act of defiance, the White House on February 20, 2026 issued an executive order imposing a global tariff of 10% (later increased to 15%), in reliance on Section 122 of the Trade Act of 1974. The White House’s “Fact Sheet” about these new duties can be found here.

While the White House’s new imposition seems intended to vindicate the President’s authority to impose tariffs, it is critical to note that any imposition of duties under Section 122 automatically expires after 150 days unless Congress votes to extend them. This time limitation is undoubtedly the reason why President Trump did not impose tariffs under Section 122 in the first place. (That, and the fact that the duties imposed under Section 122 cannot exceed 15%.) These new tariffs seem likely to provoke further disputes about the President’s authority. Nevertheless, in the near and middle term, it seems that tariffs (albeit of the more limited and time bounded type) will remain in place and remain as a key tool of the Trump administration’s trade and foreign policy.

A discussion and analysis of the economic and political implications of the Court’s ruling in the Learning Resources is beyond this blog’s remit. However, it is within this blog’s remit to consider the implications of the Court’s decision from the perspective of companies’ D&O risk exposures.

One of the D&O risks I had previously identified arising from the Trump administration’s tariff policies was the risk that companies alleged to have evaded the tariffs could face enforcement actions under the False Claims Act or for criminal tax evasion (or both). Now, as a result of the Supreme Court’s ruling, companies potentially facing enforcement actions pertaining to the tariffs imposed under the IEEPA no longer face that exposure, because the imposition of the tariffs was not authorized by law in the first place. To be sure, companies will still face the possibility of enforcement actions with respect to the Trump administration’s prior tariffs that were not imposed under the IEEPA (as discussed above), and also potentially with respect to the Trump Administration’s new Section 122 duties. In other words, the possibility of a tariff evasion enforcement action has changed, but it has not gone away.

One of the additional elements of the D&O risk arising from the a tariff evasion enforcement action is the possibility of a follow-on civil action (of the type discussed, for example here). Just as the possibility of a tariff evasion enforcement action has changed but has not gone away, the possibility of a follow-on civil action following in the wake of a tariff enforcement action has also changed by not gone away.

Finally, there is the potential threat to companies of tariff-related corporate and securities litigation. As I noted in prior posts on this site, most recently here, there have in fact been tariff-related securities actions filed against companies pertaining to the impact on the defendant companies from the Trump administration’s tariffs. The risk of these types of actions also remain, if nothing else because of the continually changing nature and unpredictability surrounding the administration’s tariff policies.

The latest developments, including both the Court’s ruling and the White House’s retaliatory imposition of Section 122 tariffs, further complicate the uncertainty companies face as they try to set business strategy in the face of the Trump administration’s tariff policies. The uncertainties also underscore the difficulties companies face as the try to manage their disclosures surrounding the likely impact of the Trump administration’s tariffs on the companies’ operations and financial performance. The continuing uncertainties ensure that companies will continue to face both operating uncertainties and disclosure challenges, both the kinds of concerns that can lead to future corporate and securities litigation.

In other words, the D&O risk arising from the Trump administration’s tariff policies continues, notwithstanding the U.S. Supreme Court’s ruling in the Learning Resources case.

Because of the length and complexity of the various Justices’ opinions, many readers may not acquaint themselves with the intricacies of the various issues the Justices (individually and collectively) were trying to sort out here. I am not sure that even those who take the time and make the effort to work through all of the opinions will thereby be edified. Even if many people may not take the time to work through everything the Justices had to say here, I believe it is worth taking the time to at least read the final paragraph from Justice Gorsuch’s concurring opinion:

For those who think it important for the Nation to impose more tariffs, I understand that today’s decision will be disappointing. All I can offer them is that most major decisions affecting the rights and responsibilities of the American people (including the duty to pay taxes and tariffs) are funneled through the legislative process for a reason. Yes, legislating can be hard and take time. And, yes, it can be tempting to bypass Congress when some pressing problem arises. But the deliberative nature of the legislative process was the whole point of its design. Through that process, the Nation can tap the combined wisdom of the people’s elected representatives, not just that of one faction or man. There, deliberation tempers impulse, and compromise hammers disagreements into workable solutions. And because laws must earn such broad support to survive the legislative process, they tend to endure, allowing ordinary people to plan their lives in ways they cannot when the rules shift from day to day. In all, the legislative process helps ensure each of us has a stake in the laws that govern us and in the Nation’s future. For some today, the weight of those virtues is apparent. For others, it may not seem so obvious. But if history is any guide, the tables will turn and the day will come when those disappointed by today’s result will appreciate the legislative process for the bulwark of liberty it is.

In the following guest post, Darren Boomfield, Account Executive at Cogitate, takes a look that the director and officer liability and insurance considerations that can arise when companies participate in venture capital funding. My thanks to Darren for allowing me to publish his article on this site. Here is Darren’s article.

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Venture capital firms have become highly sophisticated at underwriting product risk, market risk, and execution risk. Governance risk, however, is still too often treated as a problem to solve later.

That gap matters – because once institutional capital is raised, the liability profile of a startup changes immediately, whether leadership recognizes it or not.

VC funding changes the liability equation overnight

The moment a company raises venture capital, several things happen at once:

• Cash appears on the balance sheet
  
• Fiduciary duties expand
  
• Directors and officers become higher-value litigation targets
  
• Employment, equity, and disclosure decisions carry legal consequences
  

Importantly, that capital is no longer just “runway.” It can become a source of recovery in the event of a claim.

Without appropriate D&O and management liability coverage in place, plaintiffs do not need to wait for scale. The company – and potentially its leadership – is exposed immediately.

Personal liability is not theoretical

In early-stage companies, founders often assume that any lawsuit will be limited to the entity. In practice, that is frequently not the case.

Claims involving employment practices, equity compensation disputes, alleged misrepresentations, or breaches of fiduciary duty regularly name individuals, including founders, officers, and sometimes functional leaders with decision-making authority (for example, sales or operations directors involved in compensation structures or disclosures).

When no D&O coverage is in place, defense costs and potential settlements can fall directly on individuals – not because of intentional misconduct, but because governance infrastructure lagged growth.

Equity compensation creates real fiduciary exposure

Many startups do not maintain a formal ESOP in the technical sense. Instead, they rely on employee option agreements with common structures:

• four-year vesting schedules
  
• one-year cliffs
  
• monthly vesting thereafter

From a liability standpoint, these arrangements still create employee expectations tied to company valuation and future liquidity.

Disputes often arise when:

• valuations are poorly supported or inconsistently communicated
  
• funding rounds are framed internally as validation of company value
  
• employees make career decisions based on perceived upside
  
• disclosures around dilution, liquidation preferences, or downside risk are incomplete
  

When expectations and outcomes diverge, claims can follow – particularly when employees believe they were misled, even unintentionally.

Valuations and disclosures matter more than founders realize

Inflated or poorly contextualized funding announcements can become problematic long after the press release fades.

Employees frequently interpret venture raises as confirmation of company health, validation of equity value, and increased likelihood of liquidity. If later outcomes contradict those impressions, plaintiffs may argue that material information was misrepresented or omitted – especially if internal communications were overly optimistic or imprecise.

These disputes rarely hinge on fraud. They more often center on expectation management, disclosure discipline, and documentation.

When governance failures make a company effectively “uninsurable”

There is another risk founders and investors often underestimate: at a certain point, governance issues can materially limit a company’s ability to obtain insurance at all.

Startups that accumulate:

• a history of employment-related claims or lawsuits
  
• repeated disputes tied to equity compensation
  
• unusually high employee turnover
  
• inconsistent documentation or internal controls
  

may find that insurers are unwilling to quote coverage on reasonable terms – or at any terms.

From an underwriting perspective, these signals suggest elevated frequency risk and weak governance. Once that perception sets in, it can be difficult to reverse quickly.

This matters because insurance is not just a financial backstop. It is also a market signal.

Later-stage investors, strategic partners, and enterprise customers increasingly expect companies to carry higher limits of D&O and related management liability coverage. In many cases, coverage is contractually required to close financings or commercial agreements.

A company that has treated insurance purely as a cost center – delaying placement, minimizing limits, or avoiding third-party oversight – may discover that those decisions have long-term consequences. The inability to secure coverage later can become a barrier to capital, partnerships, or customer trust.

Engaging experienced third parties early – insurers, brokers, and advisors – often serves as an informal governance checkpoint. These stakeholders surface issues founders may not see and help address them before they harden into underwriting red flags.

Ignoring that expertise in the name of short-term cost savings can quietly close doors that are difficult to reopen.

Why insurance timing matters

Management liability insurance is often purchased reactively, after growth or ahead of a major event. From a claims perspective, that is frequently too late.

Placing D&O coverage at or before institutional funding:

• forces governance conversations early
  
• aligns coverage with board composition and authority
  
• protects both the entity and individual decision-makers
  

Insurance cannot fix governance failures, but the underwriting process itself often identifies gaps while they are still manageable.

A case for investor-driven governance standards

There is a strong argument that governance readiness should be treated as a core component of venture diligence, not an operational afterthought.

At a minimum, institutional investors could require:

• D&O and related management liability coverage upon funding
  
• clear ownership of HR and administrative functions (internal or outsourced)
  
• standardized equity compensation processes
  
• defensible valuation practices and disclosure discipline
  

These are not bureaucratic hurdles. They are risk containment mechanisms.

The takeaway

Once venture capital enters the picture, startups are no longer operating in a low-stakes environment. Cash on the balance sheet, equity compensation, and leadership decisions create real exposure – for both the company and individuals.

Governance and insurance are not symptoms of maturity. They are safeguards against the kinds of claims, reputational damage, and downstream constraints that can derail promising companies long before product or market failure ever does.

Treating insurance as a strategic tool rather than a discretionary expense is often the difference between a company that scales cleanly and one that finds its future options quietly limited.

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Darren Bloomfield is an Account Executive at Cogitate, a core systems software provider for insurance carriers and delegated authority MGAs. He previously worked as a D&O underwriter, where he focused on management liability, governance risk, and claims exposure for private and venture-backed companies. Darren now works at the intersection of insurance operations, technology, and go-to-market strategy.

It is no secret that SEC Chair Paul Atkins has ideas about how U.S. securities laws could be reformed to “revitalize” America’s capital markets. Among other things, late last year Atkins proposed a number of revisions to the current U.S. public company disclosure regime. Now, in a speech earlier this week, Atkins floated several additional proposed reforms, among other things referring to the possibility of loser-pays bylaws for shareholder suits and of a “safe harbor” for public company disclosures concerning widely publicized events. As discussed below, Atkins’s recent ideas have a long and relevant history. The text of Atkins’s February 17, 2026, speech can be found here.

The occasion for Atkins’s speech was the Texas A&M’s School of Law’s Corporate Law Symposium, held at the Federal Reserve Bank of Dallas.

Atkins opened his remarks with a nod to the recent Texas corporate law reforms within the context of competition between the states for a greater share of corporate registrations. Among other things, he noted that “Texas has begun to build something that could offer an interesting alternative to Delaware, through a framework designed to attract companies with shareholders who are eager to get back to basics, with less politicization, abusive litigation, and overall drama.”

Atkins next went on to discuss what more Texas might do to “strengthen its position,” and then raised some ideas for “reforming the SEC’s disclosure regime.”

In the context of what other reforms Texas might consider, Atkins expressly raised the possibility that another reform measure Texas might consider is instituting a reform requiring the loser in shareholder litigation to pay the winning party’s attorneys’ fees. He noted that while the standard U.S. model is for each party to bear its own costs, other parties, such as England follow a “loser pays” model. These other jurisdictions’ approach, Atkins suggested, “could serve as examples for Texas to follow.”

Atkins then referred to the SEC’s recently revised policy stance on mandatory arbitration bylaws. He noted that while the SEC has for its part made it clear that it no longer has a policy against these kinds of provisions for IPO companies, some jurisdictions – Delaware, for example – do not permit companies to adopt these kinds of bylaws. What, Atkins asked rhetorically, would Texas do?

Atkins’s question pretty obviously signals his belief that Texas might want to consider affirmatively allowing corporations organized under its laws to adopt mandatory arbitration bylaws.  

Atkins then went on to suggest some further public company disclosure reforms that the SEC might consider. Atkins proposed several ideas to simplify requirements in order to shorten and modernize public company disclosures. Among other things, Atkins’s proposals included suggested reforms to executive compensation disclosures; Regulation S-K requirements; and risk factor disclosure. Atkins’s proposed reforms are quite detailed and I do not propose to review them all here. Readers interested in Atkins’s more detailed proposals will want to refer to John Jenkins’s February 18, 2026 post about Atkins’s speech on the TheCorporateCounsel.net blog (here).

There is one feature Atkins’s suggested disclosure reforms that I find interesting and that I think is worth discussing here, and that is his proposal for a “safe harbor” for public company disclosures concerning widely publicized events.

The SEC, Atkins said, could “adopt a rule stating that failure to disclose impacts from publicized events that are reasonably likely to affect most companies will not constitute material omissions for purposes of some or all of the federal securities laws’ anti-fraud rules.”

A safe harbor provision of this type would have the virtue of shortening already too-lengthy risk factor disclosures, as it would “incentivize companies to include fewer generic risk factors by shielding them from liability for events related to those generic risks.” After all, Atkins said, “if companies are not compelled to catalogue nearly every conceivable contingency to guard against hindsight litigation, then they can focus on risks that are more distinctive to their business.”

Discussion

Corporate and securities litigation observers will want to read and consider Atkins’s various proposals here, as many of them at least potentially could have a significant impact on D&O claims.

For starters, Atkins pretty much encouraged Texas to consider, as part of its jurisdictional competition for company incorporations, to adopt a provision (in contrast to Delaware) expressly allowing Texas companies to adopt mandatory arbitration bylaws. Were Texas to take this step, it certainly could have an impact on the number of companies that might consider adopting these kinds of provisions and could contribute to an increase in the number of companies with these kinds of bylaws.

Atkins’s remarks encouraging Texas to consider allowing companies to adopt “loser pays” fee-shifting provisions is also interesting. Long-time readers know that the idea of allowing companies to adopt fee-shifting by laws has a long history.

There was, as many readers will recall, quite the dust-up in Delaware a few years ago after the Delaware Supreme Court issued a ruling upholding the facial validity of a fee-shifting by law in effect requiring a “loser pays” model in shareholder litigation. The Delaware legislature, responsive to concerns among members of the Delaware bar that allowing fee-shifting could undermine lucrative shareholder litigation in Delaware’s courts, quickly passed a provision prohibiting fee-shifting bylaws and putting a quick end to the kerfuffle over these kinds of provisions.

In the interim, other legislatures have entertained the idea of allowing companies in their jurisdiction to adopt fee-shifting provisions; as discussed here, a few years ago Nevada’s legislature considered allowing companies to adopt fee-shifting provisions at least in some contexts. The proposed Nevada legislation apparently died in Committee.

 Atkins’s remarks aimed to suggest that Texas should now allow these kinds of  “fee-shifting” provisions. I don’t think I am going out on a limb here to suggest that at some point we might see a proposal of this kind out of Texas. Don’t hold your breath, though. Texas’s legislature only meets every other year, and the next session of the Texas legislature will not meet until January 2027. (However, the Texas governor does have the power to call the legislature for a “special session” between the biannual meetings.) The more interesting question is whether other states might follow if Texas were to adopt a fee-shifting provision.

Atkins’s proposal for a safe harbor for reporting companies with respect to widely publicized events is, at least at the theoretical level, interesting to me. I have long worried about what I have called “event-driven” litigation. (No one else cares, but I do think it is noteworthy that I actually coined the expression “event-driven litigation.”). The perspective that event driven litigation is a problem has been significantly amplified by Bloomberg columnist Matt Levine, who has famously advanced the proposition that  “Everything Everywhere is Securities Fraud” (here). The idea that event driven litigation itself represents a problem has in fact been actively debated (about which  refer, for example, here).

Atkins’s proposal in his recent remarks lacks details on exactly what the safe harbor might look like, how it would work, and what it would protect, but at least at the theoretical level the “safe harbor” could provide public companies with some protection against event-driven litigation, and for that reason alone his proposal is interesting. It remains to be seen whether the SEC will in fact put out a concrete proposal to provide substance to Atkins’s theoretical proposition, but if Atkins’s suggestion does lead anywhere, this could be a very interesting.

The one thing that is clear is that it seems likely that Atkins will continue to propose and possibly advance ideas that could at least potentially have a significant impact on corporate and securities litigation. Stay tuned.

In the following guest post, Justin Bove, Chief Revenue Officer and Fiduciary Lead at Encore Fiduciary, reviews and analyses the ERISA fiduciary class action lawsuits filed in 2025. A version of this article previously was published on Encore’s Fid Guru Blog (here). My thanks to Justin for allowing me to publish his article on this site. Here is Justin’s article.

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2025 saw a near-record high 155 fiduciary class lawsuits filed by plaintiff firms alleging violations of ERISA and breaches of fiduciary duty. With the help of the Dorsey & Whitney law firm, Encore Fiduciary tracked these lawsuits which revealed that companies sponsoring ERISA plans continue to be under attack by plaintiff firms.

• 401(k) plans remained the most frequent target:
  • as in prior years, most lawsuits alleged excessive recordkeeping and/or investment fees
  • many lawsuits specifically cited plan fees could have been reduced by the application of forfeitures to offset administrative expenses
  • lawsuits that alleged imprudent investments shifted focus from the suite of target date funds (typically the QDIA in the plan) to stable value funds
• Health plans were targeted with increased frequency
  • most frequent lawsuits alleged unfair premium surcharges on tobacco users without a reasonable alternative standard to earn the ‘full reward’
  • voluntary benefit plans were targeted, raising concerns about the DOL’s safe harbor exempting most voluntary benefit programs from ERISA standards

By expanding their allegations against ERISA plans, plaintiff firms unlocked the ability to sue individual plan sponsors, and sometimes individual plans, multiple times. We counted over a dozen companies that faced multiple class ERISA lawsuits over the past two years, some by the same plaintiff firm. We share our analysis of ERISA litigation below to highlight its unfairness to the plan sponsor community, and its impact on the fiduciary liability insurance market.

Defined Contribution Plan Litigation Analysis

The chart below illustrates that more than 600 excessive fee and imprudent investment lawsuits have been filed against ERISA defined contribution plans over the last ten years, not counting Employee Stock Ownership Plans (ESOPs) which we have tracked separately.

Excessive Fee Allegations

Excessive fee lawsuits contain, individually or in some combination, the following allegations: (1) plan recordkeeping fees or investment fees are too high, (2) plan forfeitures should have been used to offset plan expenses instead of offsetting future employer contributions, and/or (3) plan investment performance is lower than alternative options.

Key reasons why excessive fee lawsuits remain concerning:

1. Both recordkeeping fees and investment fees have declined during the past ten years, yet during that same time lawsuits alleging excessive fees have increased significantly. Encore’s Large Plan Recordkeeping Benchmark Study proved that recordkeeping fees for large plans are already low, and more recently, the 25^th Edition of the 401k Averages Book confirmed “a continuation of a long-running industry trend: both investment and recordkeeping fees are steadily declining,” and that “average investment-related fees decreased across all plan sizes… reinforcing the long-term trend toward lower participant costs.” ^[1] Plan fees have declined over the prior ten years, so it should correspondingly follow that the number of excessive fee lawsuits would also decline. Instead, the opposite has happened – plaintiff firms have filed more excessive fee lawsuits during the same time period during which plan fees have declined. This dichotomy proves that plaintiff firms sue plans with low fees, and their agenda has nothing to do with actual plan fees charged to plan participants.
2. According to the BrightScope/ICI Defined Contribution Plan Profile published in March 2025, there were more than 1,500 401(k) Plans with more than $500m plan assets (what we consider to be ‘large plans’) in the 2022 fiscal year.  Factoring in room for plan asset growth over the last three years and hedging that some of the 606 lawsuits over this period have targeted some plans more than once, we can still conservatively estimate that close to 25% of ‘large plans’ have been sued in the past ten years and have had to defend themselves against allegations of excessive fees and/or investment performance.  This number is astronomically high when compared to the intended purpose of ERISA – a law of process not outcome, where Monday Morning Quarterbacking should not be permitted by the courts. Given that less than 3% of the universe of defined contribution plans are considered large plans ^[2], it is interesting to highlight that almost all the lawsuit activity within the last 10 years has targeted this 3%. It is even more interesting when you consider that large plans have significantly lower fees than small plans, as evidenced by the 401k Averages Book.  Plans with the highest fees almost never face an excessive fee lawsuit, while plaintiff firms target the 3% universe of plans with the lowest fees charged to participants. Plaintiff firms can leverage higher settlements from larger plans, which is why they continue to be targeted over smaller plans.

Forfeiture Allegations

Forfeitures – unvested portions of employer-contributed amounts that an employee leaves behind without meeting the plan’s vesting requirements – have become part of plaintiff allegations in excessive fee lawsuits in recent years. Plaintiffs allege that forfeitures should be used to offset plan administrative fees, including those charged to individual accounts, rather than the standard industry practice of using unvested employer contributions to reduce future company matching contributions owed to a plan. While most courts have dismissed these cases at the initial motion to dismiss stage, the majority of dismissed cases have been appealed, pushing appellate courts to again scrutinize these allegations. Notably, the U.S. Department of Labor (DOL) submitted an amicus brief in Hutchins v. HP ^[3], in which it sided with the defendant and cited how a ruling in favor of the plaintiffs could ultimately harm plan participants. The DOL’s amicus brief seemingly did not phase plaintiff firms, who filed 21 of the 48 lawsuits with forfeiture allegations after the DOL’s amicus brief was submitted, and who subsequently still obtained a near $10m settlement in Singh v. Capital One Financial Corporation. ^[4] While the DOL’s position is a welcome development for plan sponsors and fiduciary insurers, its ultimate impact remains unclear until the Appellate Court’s ruling of the case.

Imprudent Investment Allegations Targeting Stable Value Funds

Allegations of imprudent investments remained high in 2025, with plaintiff firms shifting their focus from actively managed target date funds (which are more expensive than passive, index target date funds) to stable value funds. 27 lawsuits were filed challenging the inclusion of stable value funds, alleging they had crediting rates lower than other alternative fixed income investments available in the market. These lawsuits are still making their way through the courts, making it difficult to predict how successful these suits will ultimately be.

Alternative Assets in Retirement Plans

The Executive Order “Democratizing Access to Alternative Assets for 401(k) Investors” was signed on August 7, 2025, which provided 180 days for the DOL and other federal agencies to provide guidance for alternative asset investments to be included in retirement plans, including the potential to establish a safe harbor to protect plan sponsors from “litigation risk.”  As of February 3, 2026, it remains unclear what this guidance may be. It also remains unclear if any potential regulatory safe harbor can curb litigation. Plaintiff firms have sued retirement plans with remarkable success over the past ten years, and are likely eager to sue retirement plans that replace transparent, low-cost investments with less transparent, higher-cost investments as part of any evolving investment strategy.

Health Plan Litigation Analysis

Class litigation against health plans has increased in frequency since the Consolidated Appropriations Act of 2021, which included provisions to increase fee disclosure requirements from service providers to health plans. As health plan fees are scrutinized more by plan participants and plaintiff firms, we anticipate increased legal activity against health plans.

Excessive Prescription Drug Cost Allegations

At the beginning of 2024, it was forecasted that excessive fee allegations targeting the cost of prescription drugs in health plans would become the next wave of ERISA litigation. Two cases filed in 2024 are still making their way through the courts. Both cases were initially dismissed due to lack of standing, but plaintiffs have amended their complaints, and in Lewandowksi v. Johnson & Johnson appealed to the Third Circuit. ^[5] Accordingly, only one such lawsuit was filed in 2025, albeit with slightly different allegations to secure standing. If a roadmap is determined which secures standing in these cases, then there may be additional lawsuits filed. In the meantime, some plan sponsors have proactively sued their pharmacy benefits managers (PBMs) alleging a lack of transparency and for unfairly driving up prescription drug prices. PBMs have also been increasingly scrutinized by regulatory agencies with similar concerns, which has likely stalled this legal theory.

Tobacco Surcharge Allegations

In these lawsuits, plaintiffs allege that plans have imposed premium surcharges to tobacco users in violation of ERISA and non-discrimination rules under HIPAA, and/or that wellness incentive programs which offer a reasonable alternative standard to earn or recoup the ‘full reward’ are not in compliance with federal law. Prior to 2024, one tobacco surcharge lawsuit was brought by the DOL, and within two weeks of bringing suit a judgement of less than $150k was rendered. ^[6] In 2024 and 2025, almost 50 such lawsuits were filed, 30 by one plaintiff firm, with multiple settlements just under $5m. ^[7]

More than ten cases have received rulings on motion-to-dismiss, and only case was fully dismissed. Courts have ruled in favor of the plaintiffs in all other cases, allowing the suits to proceed partially or fully. The one case which was fully dismissed, Williams v. Bally’s Management Group, has subsequently been appealed. ^[8] Given the success rate in courts, and the quick and high settlements obtained in these cases, tobacco surcharge lawsuits seem likely to be the main fiduciary claim trend to watch in 2026.

Ghost Network Allegations

One class lawsuit, Hecht v. Cigna, saw significant development in 2025 that bears monitoring. Originally filed in 2024, the lawsuit alleged that Cigna breached its fiduciary duty and violated ERISA by failing to monitor its provider network, creating a ‘ghost network’ which inaccurately represented out-of-network providers as being in-network. While previously thought to be an administrative function, in February 2025 the breach of fiduciary duty allegation survived the motion to dismiss. The court ruled that “repeated and systematic failures” by Cigna were sufficient to “plausibly suggest a breach of ERISA’s duties of loyalty and prudence.” ^[9] By October, the parties announced a settlement agreement for almost $6m. ^[10] This ruling impacts plan sponsors significantly, as the ERISA violation exposes the potential for equitable relief under Section 502(a)(3), which many fiduciary carriers do not affirmatively cover.

Voluntary Benefits Allegations

On December 23, 2025, one plaintiff law firm filed four class lawsuits in two different district courts which targeted voluntary benefit plans, alleging breaches of fiduciary duty by employers for failing to monitor the commissions earned by their benefits consultants. Interestingly, the lawsuits named these benefits consultants as defendants as well, alleging they acted in a fiduciary capacity rather than merely as a service provider. The lawsuits are one of many filed following the Supreme Court’s ruling in Cunningham v. Cornell where plaintiff firms anticipate a lower bar to survive a motion to dismiss by alleging a prohibited transaction occurred. The DOL has established a safe harbor for voluntary benefits, exempting them from ERISA requirements if certain conditions are met. It is noteworthy that all four lawsuits allege the employers failed to comply with the DOL’s safe harbor, in part by filing Form 5500s with respect to each plan. These cases will be closely monitored to see if additional lawsuits will be filed, and if so, how allegations relate to compliance with the DOL’s safe harbor.

Defined Benefit Plan Litigation Analysis

Pension Risk Transfer Allegations

Since the beginning of 2024, 13 class lawsuits have been filed against employers who had previously transferred assets and liabilities from their pension plans to purchase a group annuity contract from an insurance company, through a pension risk transfer (PRT) transaction. Plaintiff firms alleged this offloading of pension obligations to private insurance companies violated ERISA by not selecting the “safest available annuity” for retirees. Of the 13 PRT lawsuits filed to-date, 11 targeted insurer Athene and two targeted insurer Prudential. The main development in this space has been the split court rulings:

• 10 lawsuits remain from the original 13 filed, since three pairs were filed against the same defendants.
• 4 out of 10 were dismissed, but in three out of the four cases plaintiffs have either filed an amended complaint or filed a motion to alter the judgment and for leave to file an amended complaint. The fourth case was dismissed in early January 2026, and plaintiffs will likely file a motion to alter the judgement or appeal the dismissal.
• 2 out of 10 were denied motions to dismiss.
• 4 out of the 10 have yet to obtain court rulings on the initial motion to dismiss.

Split court rulings are likely to incentivize plaintiff firms to file similar cases, since only a few need to be successful to leverage settlements.

Actuarial Equivalence Allegations

Just one new lawsuit was filed in 2025 alleging that plan sponsors relied on outdated mortality tables, and therefore underpaid benefits to retirees who elected to receive lump sum benefits or to married participants when converting single-life annuities to joint and survivor annuities. Fiduciaries have followed their plan documents in these cases, yet most courts have continued to deny motions to dismiss, calling into question whether ERISA has an implied ‘reasonableness’ requirement that mortality tables be ‘current’ and not ‘outdated.’

ESOP Litigation Analysis

In 2025 there were 14 class lawsuits targeting ESOPs, all containing an allegation of improper valuation of company stock or insider benefit from a transaction. There were also 11 settlements of ESOP lawsuits in 2025, ranging from $450k to $84m. At his confirmation hearing before the Senate Health, Education, Labor and Pensions (HELP) Committee in June 2025, Dan Aronowtiz, now the Assistant Secretary of Labor for the Employee Benefits Security Administration (EBSA), stated he would “end the war on ESOPs” – a comment which received bipartisan support. In January 2026, EBSA announced its national enforcement projects for the 2026 fiscal year, in which it was confirmed ESOPs are “removed from the national enforcement project list.” ^[11]

Conclusion

Of the 600+ excessive fee lawsuits filed against ERISA plans over this ten-year period, very few ever make it to trial. Based on our internal database, 60-65% have survived the motion-to-dismiss phase, at which point plan sponsors and fiduciary insurers are faced with spending millions of dollars to produce documents in discovery and proceed toward trial. At this stage, plaintiff firms use this leverage to procure high settlements, as their case load does not permit them to try all of these cases even if they wanted to do so, which they don’t.

2025 Settlement Data:

In 2025, we tracked close to 30 settlements of excessive fee and imprudent investment lawsuits, with an average settlement of just over $3m when removing the largest outlier ($69m settlement of Snyder v. UnitedHealth Group). ^[12] As discussed earlier, the average settlement for tobacco surcharge litigation was even higher at almost $5m.

Our internal data indicates that in the last five years, there have been over 200 settlements of excessive fee and imprudent investment lawsuits totaling more than $1.3b.

Plaintiff law firms typically get 33% of these settlements, which calculates to almost $450m during this time period.

Based on our calculations and combined with analysis from the Davis & Harman law firm, it appears that individual plan participants each obtain only $55-70 on average from these same settlements. ^[13]

Plaintiff firms have even gone on the record stating their goal is to survive the motion to dismiss, as one leading plaintiff firm was cited recently by PLANADVISER saying “We don’t know… So we made the claim and then we will see if we can survive the motion to dismiss.” ^[14]

Fiduciary class litigation will only slow down if plaintiff firms lose the ability to leverage high settlements and can no longer significantly profit from filing so many cases against ERISA plan sponsors. It does not appear that legislative change is likely, as we recently wrote in our article “Congressional Hearing on ERISA Litigation: Bipartisan Support Is Needed to Set a Higher Pleading Standard.”

It does appear that regulatory change is beginning to happen. As noted above, the DOL filed an amicus brief in a forfeiture case in which it sided not with the plaintiffs but with the defendants. In January 2026, the DOL filed similar amicus briefs in three additional forfeiture cases and in a pension risk transfer case. ^[15] A reading of these briefs reveals the DOL’s thoughtful approach shifting from a ‘pro-plaintiff’ focus to a ‘pro-system’ focus, siding against plaintiffs in individual cases to concentrate on the bigger picture to ensure that employers can continue to provide good retirement and health benefits to employees without the threat of being sued.

In the current litigation environment, plaintiff firms file as many lawsuits as possible with the same allegations in district courts across the country. They sue plans with good fiduciary processes and low fees as part of their business model, taking advantage of court rulings against ERISA fiduciaries to leverage high settlements. These frivolous lawsuits have impacted fiduciary insurers’ ability to determine a good risk from a bad risk, even when reviewing fiduciary processes, investment lineups, plan documents, and fee levels. The fiduciary liability insurance market will remain in a hardened state, with high class retentions and high premiums, as long as this is the case.

Notes

Encore Fiduciary is a leading insurer of fiduciary liability insurance for all types of employee benefit plans throughout the country, including public companies, private and not-for-profit companies, governmental retirement systems, multiemployer plans, pooled employer plans, and ESOPs. Encore also writes management liability insurance – Directors & Officers Liability, Employment Practices Liability, and Crime Coverage – for private and not-for-profit risks.

Encore publishes articles regularly on its Fid Guru Blog, which provides fiduciary thought leadership, educational content, and advocacy for plan sponsors.

Justin Bove is the Chief Revenue Officer and Fiduciary Lead for Encore. He can be reached at jbove@encorefiduciary.com.

Footnotes

[1] “25th 401k Averages Book: Plan Fees Still Declining” by Brian Anderson

[2] BrightScope/ICI Defined Contribution Plan Profile

[3] Brief for the U.S. Secretary of Labor as Amicus Curiae Supporting Defendant-Appellee

[4] PACER Docket for Case 1:24-cv-08538

[5] PACER Docket for Case 3:24-cv-00671

[6] PACER Docket for Case 1:23-cv-06583

[7] PACER Dockets for Cases 3:24-cv-00686 and 6:24-cv-03122

[8] PACER Docket for Case 1:25-cv-02058

[9] “Ghost Networks, ERISA Fiduciary Duty, and the Future of Provider Directory Litigation” by Naga Vivekanadan

[10] “Cigna Reaches Class Settlement Over Provider List Coding Error” by Jacklyn Wille

[11] US DOL EBSA Updates National Enforcement Projects for Employee Benefit Plans

[12] PACER Docket for Case 0:21-cv-01049

[13] Davis & Harman LLP 2025 Underperformance and Excessive Fee Settlement Survey

[14] “Bloomberg Sued Over 401(k) Plan Funds That Allegedly Lagged Market” by James Van Bramer

[15] Amicus Curiae Brief of the U.S. Secretary of Labor in Support of the Appellant and Reversal

Recent shifts in regulatory scrutiny, proxy-advisor guidelines, and institutional-investor practices are reshaping how boards, investors, and insurers navigate the governance risks associated with proxy advisor practices. These developments take on particular significance as companies head into the 2026 proxy season. In the following guest post, Sarah Abrams takes a look at these proxy advisory-related practices developments and considers their significance. My thanks to Sarah for allowing me to publish her article as a guest post on this site. Here is Sarah’s article.

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The proxy-advisory ecosystem that has shaped U.S. corporate governance and D&O litigation risk appears to be undergoing a shift. Three recent developments, taken together, suggest that boards and D&O underwriters may be entering a more volatile and less predictable governance environment: the president’s December 11, 2025 Executive Order expressly targeting proxy advisory firms’ influence; the release of both Glass Lewis’s and ISS’s 2026 U.S. Benchmark Policy Guidelines, which refine and in some areas expand governance expectations; and the January 2026 statement by JP Morgan that it will no longer rely on proxy advisory firms for U.S. voting decisions, opting instead to use a proprietary, AI-driven voting platform.

The following will discuss how shifting proxy dynamics may affect board governance practices, investor voting behavior, and the assessment of governance-related risk by D&O insurers as the 2026 proxy season approaches.

The SEC Weighs In

On January 8, 2026, in remarks delivered by SEC Investment Management Director Brian Daly, the evolving role of proxy advisory firms and proxy voting practices took center stage. Daly offered a candid account of how modern proxy voting practices evolved: he traced today’s “vote all proxies” norm to decades of fiduciary framing, starting with the Department of Labor’s 1988 “Avon Letter” and continuing through the SEC’s 2003 proxy voting rule, arguing that what began as a commonsense conflicts principle gradually hardened into industry-wide default settings. Daly then stated that this environment created an opening for proxy advisory firms to expand beyond limited-scope research into end-to-end proxy-voting “solutions,” including recommendations that can function as de facto “industry-wide fiats.”

Notably for public companies, directors and officers, Daly acknowledged that the SEC itself may have contributed to proxy advisory firms being treated as a “de facto regulatory safe harbor,” including through now-withdrawn no-action letters that suggested advisers could “outsource” voting duties to address conflicts. Daly framed the current moment as an “opportunity to reset” and posed two foundational questions he said many advisers are asking: (1) Must I vote client proxies? and (2) If I vote, can—or must—I still use a proxy advisor?

While Daly’s remarks point to a regulatory “reset” grounded in fiduciary process and historical evolution, the Trump administration’s December 2025 Executive Order reflects a more direct and adversarial response to the perceived power of proxy advisory firms.

The Executive Order

President Trump’s EO asserts that proxy advisors wield outsized influence over corporate governance matters, including director elections, executive compensation, and shareholder proposals, and accuses them of advancing politically motivated agendas, particularly around ESG and DEI. The EO calls on federal agencies to evaluate whether proxy advisory firms’ practices are consistent with investor-protection and fiduciary principles.

For D&O purposes, the significance of the Executive Order may be less about immediate regulation, in line with SEC director Daly’s commentary, and more about litigation narrative. As D&O readers are aware, claims alleging that boards prioritized “ideological” initiatives over shareholder interests are increasingly reflected in complaints and demand letters. The President’s EO may legitimize that legal framing, increasing the risk that governance decisions will be second-guessed in hindsight through a political lens.

Although the EO casts proxy advisory firms in more political terms, and the SEC is reexamining the historical assumptions underlying proxy voting practices, proxy advisory guidelines, for now, remain visible and widely understood benchmarks for assessing board accountability, disclosure quality, and risk oversight. Against this backdrop, the Glass Lewis 2026 Benchmark Policy Guidelines provide a useful lens through which to examine how evolving governance expectations may intersect with shareholder voting behavior and governance-based litigation risk.

Glass Lewis 2026 Benchmark Policy Guidelines

Glass Lewis is a proxy advisory firm and was founded in 2003, the same year as the SEC’s proxy voting rule was created. Glass Lewis’ Benchmark Policy Guidelines are annually published governance standards that explain how Glass Lewis evaluates corporate governance issues and formulates proxy voting recommendations for U.S. public companies.

Essentially, the Guidelines are meant to function as a rulebook for proxy analysis, are not binding, but may influence institutional investors’ assessment of boards and shareholder votes. Compared to its 2025 Guidelines, Glass Lewis’s 2026 version places increased emphasis on demonstrable board oversight, particularly where companies face material operational, regulatory, or reputational risks.

For 2026, Glass Lewis signaled a greater willingness to recommend against directors following significant adverse events in which proxy disclosures suggest boards acted only after issues arose, or in which disclosures fail to clearly link board oversight processes to risk management outcomes. From a D&O underwriting perspective, this focus aligns with the fact patterns commonly alleged in Caremark-style oversight claims, where plaintiffs contend that boards failed to implement or adequately monitor critical compliance and risk-management systems.

The 2026 Guidelines also continue to disfavor governance mechanisms perceived as entrenching management, including certain supermajority voting provisions and defensive structures. Compared to 2025, the tone is more explicit in tying these structures to negative voting recommendations. For companies with dual-class stock or other atypical governance features, this increases the likelihood of shareholder challenges framed as fiduciary-duty failures, rather than mere policy disagreements.

ISS 2026 Benchmark Policy Updates

In addition to Glass Lewis’s updated policies, Institutional Shareholder Services (ISS) has also released its 2026 U.S. Proxy Voting Guidelines. ISS’s revisions continue to emphasize board accountability in the face of material risk oversight failures and refine its approach to director elections where companies experience significant operational or compliance breakdowns. Like Glass Lewis, ISS signaled heightened scrutiny of boards following adverse events and maintained its critical stance toward governance structures viewed as insulating directors from shareholder accountability.

For D&O purposes, the convergence of Glass Lewis and ISS on enhanced oversight expectations reinforces the risk that governance disclosures will be evaluated not merely for formal compliance, but for demonstrable linkage between board processes and risk outcomes.

Discussion

In January 2026, JP Morgan announced that it would discontinue the use of proxy advisory firms for U.S. voting decisions and instead deploy a proprietary, AI-driven voting platform to analyze corporate meeting data and inform voting outcomes. Whether this decision will be replicated across the institutional asset-management industry remains to be seen. In the meantime, proxy advisory firms are likely to continue issuing annual guidance, even as their relative influence may fragment.

In the wake of the Trump administration and the SEC weighing in on proxy advisory firms, at least one large institutional asset manager has announced that it will no longer use proxy advisory firms for U.S. voting decisions, opting instead to deploy a proprietary, AI-driven system to analyze corporate meeting data and inform voting outcomes. Whether this decision will be copied by the marketplace remains to be seen.  In the meantime, proxy advisory firms will likely continue to issue yearly guidance.

From a D&O underwriting perspective, this combination of stricter proxy-advisor standards and fragmented voting methodologies may create an emerging risk.  Boards may have historically treated alignment with proxy advisory guidelines as a form of soft governance safe harbor, reducing the risk of investor backlash and litigation. If significant shareholders instead ignore proxy advisories and apply bespoke or opaque analytical frameworks, the safe harbor can erode. Perhaps, moving forward, a board may comply fully with published proxy guidelines and still face opposition, activism, or litigation from investors applying materially different criteria.

A further consequence of backing away from proxy advisory firm guidance is that governance compliance can no longer function as a check-the-box exercise. If governance evaluations diverge, the risk that proxy disclosures will be challenged as misleading may increase, not because they violate proxy-advisor standards, but because they fail to anticipate how different investor groups assess oversight, performance, and risk.

Greater variability in voting outcomes may also elevate derivative litigation risk, particularly following adverse operational or financial events. In this environment, D&O underwriters may want to place greater emphasis on how boards document oversight processes and respond to emerging risks, rather than on formal adherence to any single set of governance benchmarks.

The views expressed in this article are exclusively those of the author, and all of the content in this article has been created solely in the author’s individual capacity. This site is not affiliated with the author’s company, colleagues, or clients. The information contained in this article is provided for informational purposes only, and should not be construed as legal advice on any subject matter

In the following guest post, Megan Black, a D&O broker in the Financial Services Group at Aon, reviews and analyzes how private company D&O insurance policies address legal defense costs. This overview highlights the key differences between Duty to Defend and Reimbursement approaches. The original article was previously published on the AON Financial Services Group’s web presence and can be found here. My thanks to Megan for allowing me to publish her article as a guest post on this site. Here is Megan’s article.

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When renewing or purchasing a management liability insurance policy, one of the most important and often overlooked considerations is how your legal defense will be managed if a claim arises. This overview will help you understand the difference between Duty to Defend and Reimbursement policies, and the typical claims experience for each.

Why It Matters

Legal defense is often the largest expense in management liability claims, including lawsuits from shareholders, employees, or regulators. The way your policy handles defense can impact:

• Who selects and manages your legal counsel
• How quickly your insurance limits are exhausted
• How much control you have over the defense process
• What costs you might incur out-of-pocket

Making an informed decision ensures that you are well-prepared to navigate stressful and complex situations.

What Is Duty to Defend?

With a Duty to Defend policy:

• Your insurer is obligated to provide and pay for your legal defense, even if the claim is groundless or false.
• The insurer selects the law firm (typically from a list of experienced panel firms) and manages the defense process.
• Legal bills are paid directly by the insurer at pre-negotiated, often discounted rates.

Example:
Your nonprofit is sued for alleged mismanagement. With a Duty to Defend policy, the insurer immediately appoints a specialized law firm and pays the bills directly, allowing you to focus on your organization rather than legal logistics.

What Is Reimbursement?

With a Reimbursement policy:

• You choose your own legal counsel, subject to insurer approval of the attorney and their rates.
• You pay for your legal defense upfront and then submit bills to the insurer for reimbursement, based on policy coverage.
• You control the defense strategy, but settlements and other key decisions may still require insurer approval.

Example:

Your company is investigated by a regulator. Your policy extends to coverage for investigations, and you want to use your trusted outside counsel. With a Reimbursement policy, you can do so (with insurer approval), pay their bills, and then seek reimbursement from your policy, keeping in mind that not all costs may be covered.

Comparing Your Options: Duty to Defend vs. Reimbursement

Duty to Defend: The insurer selects the attorney, who is typically from their panel and experienced with these types of claims. You may be able to request your own, but this is subject to approval. The insurer then manages the case and pays attorneys directly at their negotiated rates. The insurer also typically pays all defense costs for covered claims, and the administrative work for you is minimal.

Reimbursement: You (with the insurer’s approval of the attorney and rates) select and manage the attorney, who may be familiar with your business. You pay fees upfront, then seek reimbursement and manage invoices. Keep in mind that the costs and what is reimbursed are allocated between covered and uncovered matters.

Additional Considerations

• Using Your Preferred Attorney: Some Duty to Defend policies may allow you to use your own attorney, provided the insurer agrees. Insurers will evaluate the qualifications of the firm and may endorse the firm at pre-negotiated defense rates.
• Switching to Duty to Defend: Some reimbursement policies allow you to transfer control back to the insurer for a specific claim.
• Rising Legal Costs: Legal fees and court awards are increasing. The way your policy handles defense can help protect your insurance limits.

Real World Scenarios: Duty to Defend vs. Reimbursement

In real-world scenarios, Duty to Defend and Reimbursement can play out very differently. In a complex lawsuit with multiple allegations, under a Duty to Defend policy, the insurer covers all defense costs for covered claims, even if some parts of the lawsuit are not covered. You may also be required to use the insurer’s panel firm unless you receive special approval.

For the same complex lawsuit, under a Reimbursement policy, you will need to track and allocate costs between covered and uncovered matters, which can be time-consuming and may leave you with unreimbursed expenses. You do, however, have the flexibility to choose the attorney (subject to insurer approval), but you may incur higher out-of-pocket expenses if their rates exceed what the insurer allows.

Key Considerations

• How much control does your organization want over legal strategy and attorney selection?
• Does your organization have a relationship with an attorney who understands your business and these types of claims?
• Is your organization prepared to handle the paperwork and cash flow involved in paying for legal defense upfront?
• How important is it to ensure that all your legal bills will be paid (subject to policy limits)?
• Are there reputational or operational issues that make control over the defense particularly important for your organization?

Conclusion

There is no single “right” answer, as each approach has its own benefits and trade-offs. The best choice depends on your organization’s needs, resources, and risk appetite. Understanding these options now will help ensure your insurance policy functions as expected if a claim arises.