My overseas assignment for The D&O Diary continued this week with a stop in the Catalan city of Barcelona, nestled between the mountains and the sea in coastal Spain. I was very happy to be back in Barcelona again, because I know from prior experience that the city’s combination of great weather, splendid setting, excellent food, and architectural richness is pretty hard to beat.

The primary purpose of my most recent visit to Barcelona was to participate in a roundtable with the international Financial Lines underwriting team at Tokio Marine HCC’s Barcelona office. It was an enjoyable afternoon session, enhanced by the conference room’s view of the Mediterranean Sea. In addition to the 25 or so who attended the session live in the conference room, another 25 or so attended remotely. It was an interesting session and I enjoyed the opportunity to interact with the TMHCC Financial Lines professionals. My thanks to everyone who attended, whether in person or virtually; to Sebastian Gemberg-Wiesike, for organizing the session; and to Pim van der Drift, for inviting me to attend. (Pim was not able to attend the event but his initiative made it happen.)

While I had scheduled business meetings during my time in Barcelona, I also had a chance to look around a little bit while I was in town. The high point of my city touring was on Sunday when I walked from my hotel to Park Güell and then on to the famous Barcelona basilica, La Sagrada Familia. It was a great day, although in coming up with the plan to walk to the sites, I had overlooked the fact that the park is essentially straight uphill from my hotel, and I had also overlooked the fact that the temperature, a comfortable 76 degrees when I set out, was well into the mid-80s by the time I reached the park.

My visit to Barcelona was all too short. Barcelona is a city that rewards exploration and roaming. So many things to see and to discover. The city deserves more time. I have to go back.

For both public and private companies and their boards, directors and officers (D&O) insurance continues to be a critical component for mitigating potentially significant financial exposure from litigation. In the following guest post, Scott N. Sherman and Edgar A. Neely IV discuss key D&O policy terms and concepts for directors to know for that selection process. Scott and Edgar are both partners at the Nelson Mullins law firm. We would like to thank Scott and Edgar for allowing us to publish their article on this site. Here is the authors’ article.

Quick Primer on D&O Policy “Sides”

Before turning to particulars, a quick primer on D&O policies. At a high level, coverage is typically broken into three sides:

• “Side A” covers individual directors and officers for non-indemnifiable personal loss,
• “Side B” covers reimbursement to the company after it indemnifies individual directors and officers, and
• “Side C” covers the company for covered claims against it (typically securities claims for public companies).

Most D&O policies contain each of these separate coverage components. Understanding these components and ensuring that all three are encompassed by the policy should be the first step for the selection process. 

For the coverage terms themselves, below are 10 key terms and provisions boards should consider for selecting an appropriate policy.

1. Policy Limits and Order of Payments

In addition to selecting the right overall policy limit, it’s also important to understand how that limit works.  A $15 million policy does not necessarily provide $15 million of protection to directors personally.  Multiple claims or claims against the company itself may erode the available limit.

Directors should understand how the Side A, B, and C coverages interact and whether the limits available under one coverage section can be eroded by claims under another. Strong Side A protection can also be particularly important when indemnification is unavailable because of insolvency, legal restrictions, or other circumstances.  For example, policies can prioritize individual Side A protection first if policy limits begin to erode rapidly due to heavy defense costs or corporate entity-level (Side C) claims.

• Prompt Advancement of Defense Costs

Defense costs can become substantial long before a case reaches settlement or judgment, and directors should avoid having to fund years of defense expenses personally while waiting for the ultimate resolution of a suit or coverage dispute.  Some policies may not provide for prompt advancement or include terms that may hold up the process, such as requiring allocation disputes to be resolved or other conditions. Boards should therefore review for advancement terms that provide prompt, mandatory advancement of legal fees and defense expenses before the final disposition of a claim or suit.   

• Severability

A strong severability provision generally prevents one insured person’s knowledge, conduct, or misrepresentation from automatically being attributed to another insured. Boards should assess the policy for severability terms, including related application representations, knowledge of circumstances, and policy exclusions.  Directors should not necessarily lose coverage because another insured director or officer allegedly made a misrepresentation or engaged in misconduct.  Boards can avoid issue that by ensuring one insured’s misconduct cannot be imputed to or used to deny coverage to any other “innocent” director or officer.

• Side A “Difference in Conditions” Coverage

In some circumstances, a company may be unable or unwilling to indemnify an individual insured, including when standard coverage limits are exhausted.  Many companies address that risk by purchasing specialized Side A “difference in conditions” (DIC) coverage in addition to their primary D&O policy to provide standalone protection to the individual insured.  Directors should consider whether to obtain that specialized coverage. 

• Favorable Exceptions to “Insured v. Insured” Exclusion

D&O policies often contain an “insured versus insured” exclusion restricting coverage for claims brought by one insured against another.  This exclusion can apply to a variety of corporate disputes involving claims between directors, officers, the company, and shareholders. Broadly worded exclusions can create unexpected coverage gaps for those situations, but ensuring certain exceptions can minimize those gaps.  Boards should review the exceptions carefully to determine whether the policy still responds to derivative actions brought by shareholders, employment-related claims, or bankruptcy or insolvency proceedings. 

• Regulatory and Government Investigations Coverage

Any company could become subject to regulatory and government investigations or inquiries, whether by the SEC, FTC, or other agencies. These matters can lead to substantial legal expenses even if no lawsuit or enforcement action ultimately follows. Boards should determine whether the policy covers investigations involving directors and officers and, importantly, whether coverage applies to formal investigations, informal investigations, interviews, subpoenas, and requests for information.

• Prior Acts, Continuity, and Retroactive Dates

Directors should also consider whether the policy covers acts occurring before the current policy period.  For example, changing insurers can unintentionally create gaps if the new policy does not adequately address prior acts.  Boards can avoid such gaps or prior act limitations by maintaining full retroactive coverage dating back to the inception of the company or earliest board service.

• Related Claims and Interrelated Wrongful Acts

D&O policies often treat multiple claims arising from related facts as a single claim. Directors should clarify how multiple claims arising out of the same or continuous wrongful acts are grouped, ensuring they tie back to the most favorable single policy year limit or retention. This includes assessing when claims are deemed related, which policy period applies, and which policy limit is available.

• Non-Rescission Clause

Insurers may attempt to cancel the policy after it is issued, creating a looming concern that coverage could effectively cease to exist when it’s most needed.  Boards should therefore look to ensure the policy’s Side A coverage is fully non-rescindable by the insurer once issued, protecting coverage integrity against insurer attempts to invalidate the contract.   

1. Jurisdiction and Choice of Law

Coverage disputes can also be drawn out by arguments over what law applies and where the litigation must occur—both of which are issues that can meaningfully impact the ultimate result. It’s therefore important to secure favorable “choice of law” and forum selection clauses to avoid protracted litigation with insurers over where coverage disputes must be litigated and the applicable law.

Wrap-Up

It’s important for directors to understand each of these concepts and protections on the front end when engaging in the D&O policy selection process.  Then, should litigation arise, they should consult with counsel to review and secure the available rights and protections from personal exposure. 

These materials have been prepared for informational purposes only and are not legal advice. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. Internet subscribers and online readers should not act upon this information without seeking professional counsel.

Scott N. Sherman is a partner at Nelson Mullins Riley & Scarborough LLP, where he practices in complex business litigation and securities litigation and serves as co-chair of the firm’s Securities and Corporate Governance Litigation Group. He represents public companies, directors, and officers in securities class actions and derivative lawsuits and represents special litigation committees as well as companies and individuals involved in SEC and FINA enforcement proceedings. He may be reached at scott.sherman@nelsonmullins.com.

Edgar A. Neely IV is a partner at Nelson Mullins Riley & Scarborough LLP, where focuses his practice on securities litigation and complex business disputes. He may be reached at edgar.neely@nelsonmullins.com.

In our recent round-up of the top D&O stories so far this year, one of the top developments in 2026 we noted is the growing amount of AI-related D&O litigation. The AI-related litigation trend has continued to develop, as new AI-related lawsuits continue to be filed. In recent days, plaintiffs’ lawyers have filed two further AI-related securities class action lawsuits, first, against the Chinese Internet company Baidu, and, separately, against the AI-powered Internet advertising firm AppLovin. Both new lawsuits are based on AI-washing type allegations. The new lawsuit against Baidu also reflects the surging levels of securities litigation this year involving Chinese companies, as discussed further below.

The Baidu Lawsuit

Baidu maintains the most popular Internet search engine in China. In the past, the company has realized most of its revenue from online marketing services. In 2025, the company online marketing services revenue began to decline. However, the recently filed complaint alleges, the company assured investors that “its new core AI-Powered Business growth had, and would continue to, meaningfully mitigate Baidu’s Online Marketing Services decline.”

In February 2026, when the company reported its fourth quarter and full-year 2025 financial results, the company reporting overall declining revenue, but also reported that “AI-Powered Business” grew 48% year-over-year in its fiscal 2025.

In August 2026, when the company reported its 2Q26 financial results, the company again reported overall declining revenues, including declines in Online Marketing services revenue. “Critically,” the complaint alleges, “the Baidu Core AI-Powered Business fell 8% quarter over quarter,” and its largest AI business component, AI Cloud Infra, fell 17% quarter over quarter. The complaint alleges that the company’s share price declined nearly 13% on this news.

On September 14, 2026, a plaintiff shareholder filed a securities class action lawsuit in the Southern District of New York against Baidu and certain of its directors and officers. The complaint purports to be filed on behalf of investors who purchased the company’s securities, between November 18, 2025, and August 17, 2026. A copy of the new lawsuit against Baidu can be found here.

The complaint alleges that the defendants failed to disclose to investors “(1) that the Company had overstated the ability of its AI business to mitigate rapid declines in its legacy online marketing business; (2) that, as a result, the Company’s revenue was reasonably likely to decline; and (3) that, as a result of the foregoing, Defendants’ positive statements about the Company’s business, operations, and prospects were materially misleading and/or lacked a reasonable basis.”

The complaint alleges that the defendants violated Section 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 class.

The AppLovin Lawsuit

AppLovin provides artificial intelligence-powered advertising solutions. The tools the company provides its customers use AI models to more efficiently match an advertisement to a prospective consumer.

The complaint alleges that during the class period the defendants touted the purported strength of AppLovin’s AI models as a major driver of the Company’s growth, telling investors that AppLovin was “constantly improving” its models. The company, the complaint alleges, described its business approach as promoting a “virtuous cycle” of improvement and revenue, in which better models yielded greater returns for the Company’s advertiser customers, thus incentivizing them to increase their spending on AppLovin’s services, and encouraging new customers to begin using AppLovin’s services. The company’s strategy included, in particular, the development and roll out of a generative AI video creative feature.

On July 13, 2026, a securities analyst’s report noted softer than expected e-commerce ad growth amid concerns about AppLoving Ads rollout, the footprint for which expanded at a lower-than-expected pace. The price of the company’s shares fell 12.7% on this news.

Then on August 5, 2026, the company announced its financial results for the quarter ending June 30, 2026. The company reported quarterly revenues below consensus analyst estimates. Among other things the company noted that its generative AI video tool was “still a work in process.” The company’s share price declined a further 19%.

On September 16, 2026, a plaintiff shareholder filed a securities class action lawsuit in the Northern District of California against AppLovin and certain of its directors and officers. The complaint purports to be filed on behalf of a class of investors that purchased the company’s securities between February 12, 2026, and August 5, 2026. A copy of the new complaint filed against AppLovin can be found here.

The complaint alleges that during the class period, the defendants misrepresented or failed to disclose that: “(i) the generative AI video creative feature for the Company’s AppLovin Ads platform was subject to significant development delays, making its release on the Company’s timeline unlikely; (ii) Defendants overstated the constancy with which AppLovin was improving its AI models; (iii) for these reasons, among others, AppLovin had significantly overstated the benefits and reliability of the purportedly ‘virtuous cycle’ and ‘compounding’ value proposition that its AI models provided to customers and to the Company; and (iv) 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 damages on behalf of the plaintiff class.

Discussion

The allegations against the defendant companies are of course company specific, but the allegations also reflect typical AI-washing allegations, in which the securities lawsuit plaintiff alleges that the defendant company overstated its AI-related business prospects or opportunities.

The new lawsuits have only just been filed, and it remains to be seen how they will fare. A neutral observer might well note that it may yet turn out that Baidu’s AI business could in fact offset the declines in its legacy business, and AppLoving’s rollout of its new AI-powered tools could yet prove to be successful.

The new lawsuits do, as noted at the outset, represent examples of an important current D&O litigation trend, which is the growing numbers of AI-related lawsuit filings. By our tally, these new lawsuits bring the 2026 count of AI-related lawsuit filings to 24, representing nearly 14% of all new securities class action lawsuit filings this year. The 24 YTD AI-related lawsuit filing total compares with the 16 AI-related lawsuits filed during the full year of 2025. Clearly, by year-end, AI-related lawsuits will represent a significant component of overall securities suit filings this year.

It is also noteworthy that the new Baidu lawsuit involves a Chinese company. There has been a rash of securities suit filings against Chinese companies in 2026. According to our tally, this new lawsuit against Baidu is the 13^th lawsuit filed this year against companies based in China or in Hong Kong.

One thing driving the number of new filings against Chinese and Hong Kong companies this year is the number of new lawsuits filed against companies based in China and Hong Kong involving pump-and-dump or other market manipulation-based lawsuits. There have been a total of six lawsuits this year filed against companies based on China or Hong Kong based on market manipulation allegations. However, as the new Baidu lawsuit shows, not all of suit filings against companies based in China and Hong Kong are  based on market manipulation allegations.

The 13 lawsuits filed this year against companies based on China and Hong Kong represent nearly 8% of all U.S. securities lawsuit filings this year and nearly 40% of all securities suits filed this year involving non-U.S. company defendants. So, not only are AI-related lawsuits driving the overall numbers of securities suit filings in 2026, but another significant factor contributing to the overall volume of securities litigation is the number of companies that have been filed this year against companies based in China and Hong Kong.

The D&O Diary has been following the evolving litigation and management liability issues arising from the Trump Administration’s use of the International Emergency Economic Powers Act (IEEPA) to impose tariffs, the subsequent judicial decisions invalidating those tariffs, and the wave of refund litigation that has followed. As these developments have unfolded, tariff-related litigation has expanded beyond refund actions and shareholder claims to include consumer lawsuits alleging that companies improperly passed tariff costs on to customers.

One recent example is the litigation filed against Levi Strauss & Co. (Levi’s) in California and Louisiana. The allegations against Levi’s reflect the continued filing of tariff-related claims at a time when the scope and applicability of U.S. tariffs remain in flux. Although the tariffs imposed under IEEPA were invalidated by the Supreme Court, other tariffs and tariff-related trade measures remain in effect, including recent U.S. tariffs on Canadian imports and Canada’s corresponding countermeasures. These continuing trade actions demonstrate how rapidly changing tariff policies can create significant challenges for corporate governance, disclosure practices, and risk management.

The discussion below examines the allegations against Levi’s, as well as the potential impact of tariff-related business decisions on D&O exposure.

The Levi’s Litigation

On June 18, 2026, plaintiffs filed a putative class action in the United States District Court for the Northern District of California, alleging that Levi’s increased consumer prices to pass through costs associated with the IEEPA tariffs and now stands to receive a “double recovery” by retaining higher prices while also seeking refunds of the invalidated tariffs. The California complaint asserts claims for unjust enrichment, violations of California’s Unfair Competition Law and the Consumers Legal Remedies Act.

The similar putative class action filed in August against Levi’s in the United States District Court for the Eastern District of Louisiana also alleges that Levi’s incorporated IEEPA-related tariff costs into the prices paid by consumers.  The complaint further alleges that, following the Supreme Court’s decision in Learning Resources, Levi’s retained the benefit of those tariff-related price increases while remaining eligible to pursue governmental refunds of the duties it paid. The Louisiana complaint asserts claims for unjust enrichment, enrichment without cause under Louisiana law, and violations of the Louisiana Unfair Trade Practices and Consumer Protection Law. 

In both complaints, the plaintiffs are seeking restitution, disgorgement, compensatory damages, attorneys’ fees, and class certification.

Discussion

The lawsuits against Levi’s add to the growing number of consumer class actions seeking to capitalize on the refund process that followed the invalidation of the IEEPA tariffs. Similar lawsuits have already been filed against a number of companies, including Fabletics, Costco, Sony Interactive Entertainment, Microsoft, Nike, Lululemon, Five Below, Stanley Black & Decker, Amazon, Pitney Bowes, and Nintendo. In each case, plaintiffs contend that companies passed tariff costs on to consumers through higher prices while also seeking to retain any resulting government tariff refunds. The theory effectively seeks to prevent what plaintiffs characterize as a “double recovery.”

The Levi’s litigation underscores that, despite the Supreme Court’s ruling, tariff-related exposures have not disappeared. Although the Supreme Court invalidated the tariffs imposed under IEEPA, tariff-related risks remain a significant concern for many businesses. As D&O Diary readers may recall, the Learning Resources decision was limited to IEEPA tariffs and did not affect tariffs imposed under other statutory authorities. Moreover, ongoing trade disputes, including the recent exchange of tariffs and countermeasures between the United States and Canada, continue to create pricing, sourcing, supply-chain, and disclosure challenges for companies.

The litigation is also a reminder that business decisions made during the IEEPA tariff period may continue to face scrutiny. Many companies adjusted pricing, sourcing, and supply-chain strategies in response to increased tariff costs, while publicly discussing the impact of tariffs on profitability and consumer demand. Plaintiffs now seek to challenge those decisions after the fact, arguing that consumers who absorbed tariff-related price increases should share in any refunds companies receive following the invalidation of the tariffs.

Although the specific risks vary depending on a company’s ownership structure, tariff-related litigation and refund disputes may create D&O exposure for both public and private companies.

For public companies, D&O risk may arise not from the underlying consumer class actions themselves, which generally would not constitute “Securities Claims” under a D&O policy, but from potential follow-on shareholder litigation. Questions could arise regarding disclosures about tariff-related pricing decisions, the anticipated impact of tariff refunds, or the financial consequences of the Learning Resources ruling. If tariff recoveries are material, investors may scrutinize disclosures concerning the expected value of those refunds and management’s plans for handling them. In addition, tariff-related litigation and any resulting financial or reputational impact could trigger shareholder claims challenging management’s oversight and disclosure practices.

Another area to watch is how companies account for and disclose potential tariff recoveries. For some companies, anticipated refunds may be material, raising questions regarding earnings guidance, reserve practices, financial reporting, and public disclosures concerning the likelihood and amount of any recovery. Post-event litigation waves may lead to disputes over underlying business decisions, giving way to scrutiny of what management disclosed about its expected financial consequences.

For private companies, the financial impact from tariff-related consumer lawsuits may be more immediate. As we have previously noted, shifting trade policies and tariff-related business decisions can transform what initially appear to be operational challenges into management liability concerns. Companies that have adjusted pricing, sourcing, or supply-chain strategies in response to tariffs may now find those decisions subject to heightened scrutiny, as a growing number of consumer lawsuits seek to challenge the business judgments made during the tariff period. Although consumer class actions may not fall squarely within the core coverage grant of a private company management liability policy, they can generate significant defense costs and create circumstances that could later give rise to covered claims.

Whether the plaintiffs’ theory against Levi’s and similarly situated consumer brands ultimately succeeds remains uncertain. Nevertheless, the growing number of filings suggests that the plaintiffs’ bar views tariff-refund litigation as an attractive avenue for recovery.  Thus, the continued filing of “double recovery” lawsuits illustrates how business decisions made in response to tariffs may continue to generate litigation, disclosure, and D&O risks long after the underlying tariffs have been invalidated.

This past week I was on assignment for The D&O Diary in Madrid, Spain’s capital and largest city. It was a return trip to the city for me, although I think I appreciated it much more this time. It is without a doubt a great place and a great place to visit.

The primary purpose of my visit to Madrid was to participate as a keynote speaker at the Kennedys law firm’s annual Financial Lines Day event. The event, which was held at the Palacio de los Duques de Pastrana, was remarkably well-attended. Over 200 financial lines insurance professionals attended. I would like to congratulate Ignacio (Nacho) Figurol and his Kennedys colleagues for a very successful event.

I had a host of other meetings and events while I was in Madrid. On my first full day in the city, I participated in another, smaller, less-formal event at the Kennedys law firm’s offices. The event was organized by the Marsh Madrid office, and the audience included representatives from a number of larger Spanish companies. It was an interesting session. I was struck by how interested and engaged the audience members were. I always say, no one learns more than me from these events. I learn so much from the questions.

While I had many meetings and scheduled events while I was in Madrid, I did also have a little bit of a chance to look around while I was there. I was fortunate that while I was in town, the weather was nothing short of spectacular. The days were sunny and warm (well, maybe a little hot, too) and the evenings were long and pleasant.

As crypto-related litigation continues to mature, the focus has shifted beyond the threshold question of whether digital assets constitute securities. Increasingly, private plaintiffs are pursuing claims that resemble traditional securities litigation including allegations involving disclosure failures, market misconduct, and investor losses. At the same time, the Clarity Act, legislation that would have established a statutory framework for digital asset regulation and clarified the respective roles of the SEC and CFTC, failed to advance through congress. Yet digital assets continue to move further into the financial mainstream, with reports that major U.S. banks are exploring a joint stablecoin initiative.

Against that backdrop, a recent decision in the long-running Jump securities class action arising from Terraform Labs (Terraform) collapse underscores the evolving nature of crypto-related litigation. In a September 2, 2026, opinion, the Northern District of California largely denied motions to dismiss, allowing core securities fraud and market manipulation claims to proceed. Beyond its high-profile factual backdrop, the ruling highlights how crypto litigation is increasingly being analyzed through familiar securities law concepts rather than focusing solely on whether a particular digital asset qualifies as a security.

As discussed below, the decision may offer useful insights for D&O underwriters evaluating the evolving nature of crypto-related litigation risk as digital assets become more integrated into the broader financial system.

Terraform Collapse

By way of background, the implosion of Terraform became one of the defining crises of the crypto industry. Terraform’s flagship product was UST, an algorithmic stablecoin designed to maintain a one-to-one value with the U.S. dollar through an algorithmic relationship with its companion token, LUNA. In May 2021, UST briefly fell below its intended one-dollar value before recovering.

The SEC’s later enforcement action against Terraform Labs and related proceedings alleged that the recovery was aided by undisclosed purchases of UST by a trading firm. When UST again lost its dollar peg in May 2022, no similar intervention occurred. The stablecoin entered a rapid death spiral, erasing more than $40 billion in market value and causing the collapse of Terraform’s platform. Terraform founder Do Kwon later admitted that he failed to disclose a trading firm’s role in restoring UST’s peg following the May 2021 de-pegging event.

The Jump Litigation

Jump Trading, a Chicago-based proprietary trading and market-making firm, allegedly played a significant role in Terraform’s operations and in efforts to restore UST’s dollar peg following the May 2021 de-pegging event. In June 2022, following the Terraform collapse, lead plaintiffs Michael Tobias and Nick Patterson, on behalf of a proposed class of investors, filed the securities case against Jump Trading, related parties and certain individuals (collectively Jump). The operative Fourth Amended Complaint, was filed on October 31, 2025, and alleges that when UST lost its dollar peg in May 2021, Terraform’s stabilization mechanism failed and Jump entered into a secret arrangement with Kwon to purchase large quantities of UST to restore the peg.

On September 2, 2026, the Northern District of California denied motions to dismiss filed by Jump. The court concluded that plaintiffs had plausibly alleged that Jump participated in a secret arrangement with Terraform founder Do Kwon to purchase substantial quantities of UST during the May 2021 de-pegging event, thereby helping restore the stablecoin’s dollar peg after Terraform’s algorithm allegedly failed. The court further held that plaintiffs adequately pleaded claims based on alleged omissions concerning Jump’s role in the re-pegging effort, as well as market manipulation claims premised on allegations that Jump purchased UST at above-market prices to artificially support the stablecoin’s value.

The court also permitted claims involving alleged misstatements and omissions, market manipulation, and certain control person liability theories to move forward. Significantly, the court reaffirmed its earlier conclusion that UST could be treated as a security, notwithstanding regulatory developments addressing reserve-backed stablecoins, which the court found did not affect its analysis of UST’s status.

Discussion

The Jump ruling arrives at a consequential moment for the crypto industry, following the Senate’s September 15, 2026, vote rejecting a procedural motion to advance the Digital Asset Market Clarity Act (Clarity Act). Without a comprehensive legislative framework, courts and federal regulators are likely to play an increasingly important role in defining the rules governing digital assets, making decisions like the one in Jump particularly significant for industry participants and their insurers.

Against that backdrop, the Jump litigation also reflects a broader trend in which private securities suits increasingly target participants across the crypto ecosystem beyond the token issuers themselves. More generally, the case illustrates how crypto-related litigation is increasingly resembling traditional securities litigation.

For D&O underwriters, the decision in the Jump litigation is noteworthy because the court permitted key disclosure and market manipulation claims to proceed against a participant in the Terraform platform that was not itself the issuer of the underlying asset. The surviving claims highlight how litigation exposure may arise from a company’s involvement with a digital asset venture. The allegations also suggest that underwriters may place greater emphasis on disclosures and oversight when evaluating crypto-related risks.

The ruling also highlights the D&O risks associated with alleged disclosure failures. The surviving allegations focus on claims that defendants failed to disclose the earlier failure of Terraform’s stabilization mechanism while continuing to promote the stability of the platform. In that respect, the case resembles traditional securities litigation involving alleged omissions about operational weaknesses, product risks, or internal controls.

The timing of the decision is particularly noteworthy given reports that several large U.S. banks are exploring stablecoin initiatives of their own. If stablecoin products become more widely adopted by regulated financial institutions, D&O underwriters may increasingly confront risks resembling those traditionally associated with banking, payments, and securities activities.

The case also illustrates the importance of parallel proceedings. The complaint against Jump draws heavily on evidence developed through SEC investigations, settlements, criminal cases, and related litigation. As in many traditional securities matters, regulatory investigations can become the foundation for significant follow-on civil litigation.

Taken together, the court’s decision provides another indication that crypto-related litigation is continuing to converge with traditional securities litigation. For D&O underwriters, the key takeaway may be that digital asset risks increasingly should be evaluated through familiar securities-law concepts, particularly disclosure practices, governance, and regulatory scrutiny.

In the following guest post, Chris Mosley and John Orr discuss the findings from the 2026 North America edition of the Global Directors’ and Officers’ Survey, developed by Willis, a WTW business, in collaboration with Reed Smith LLP. As the survey results show, cyber risk remains the leading concern for directors and officers in North America, while artificial intelligence has emerged as one of the fastest-rising areas of board-level focus. The survey also highlights growing concerns surrounding governance, regulatory compliance, supply chain disruption, and litigation risk. Chris Mosley is a partner in the Denver office of Reed Smith who focuses his practice on insurance recovery exclusively on behalf of policyholders, and John Orr is the D&O Liability Product Leader for Willis, North America, based in San Francisco. Our thanks to Chris and John for allowing us to publish their article on our site.

The 2026 edition of the Global Directors’ and Officers’ Survey, developed in collaboration between Willis, a WTW business, and Reed Smith LLP, maintains the survey’s ongoing international focus, with responses from directors, officers and risk managers in more than 40 countries. The survey asks respondents to assess the importance of specified risks for directors and officers, whether financial, reputational or both. This discussion focuses on responses from North America, including the United States and Canada. The North America region accounted for 13% of global responses, comprising 127 respondents from the United States and 3 from Canada.

This year’s North America results reflect a risk landscape shaped by a familiar combination of cyber exposure, core governance issues and the rapidly increasing prominence of artificial intelligence. Responses from both the U.S. and Canada suggest that directors and officers remain highly attuned to risks capable of causing near-term disruption, while at the same time assigning greater weight to emerging, technology-driven threats that may alter risk profiles over time.

Cyber risks retain the top spot

Cyber risk again ranked as the most significant concern for North America respondents, consistent with results from recent years. Among specific exposures, cyber attack risk (including cyber extortion) was cited as very or extremely important by 83% of respondents, making it the highest ranked risk overall. Data loss followed closely, with 81% of respondents identifying it as a critical concern. These results represent notable increases from the prior year’s survey, where data loss led at 77% and cyber attack followed at 76%; the two risks have effectively swapped positions, with cyber attack moving from number two to number one, reflecting the escalating sophistication and frequency of cyberattacks facing organizations today.

This heightened concern among North American respondents aligns with broader global trends. The World Economic Forum’s Global Cybersecurity Outlook 2026 report highlighted the growing sophistication of cybercriminals, fueled in part by rapid advances in generative AI, while IBM’s Cost of a Data Breach Report 2025 estimated that the global average cost of a data breach reached approximately $4.44 million. AI-powered social engineering, deepfake fraud and ransomware attacks have fundamentally altered the corporate threat landscape, making it increasingly difficult for organizations to distinguish genuine communications from malicious ones. Taken together, these findings underscore that cyber-related exposures continue to sit at the top of board and executive risk agendas across the region, reflecting both their frequency and potential severity.

Beyond cyber, health and safety remained a top tier concern. Eighty percent of North America respondents rated health and safety as very or extremely important, making it the third highest ranked risk overall. This represents a significant increase from its number four ranking at 71% in 2025 and contrasts with global results where health and safety remained the number one overall risk at 76%. Despite sustained focus in prior years, the category has not receded in importance, reflecting its wide ranging implications for employee well being, operational continuity and organizational reputation. Within this risk area, respondents most frequently pointed to mental health, financial well being, burnout, work demands and working hours as key workforce related challenges.

North America Top 7 Risks

The Trump Administration: Deregulation continues

Governance and compliance risks also featured prominently. Systems and controls were rated as very or extremely important by 72% of respondents, highlighting the ongoing emphasis on internal oversight, control environments and effective risk management processes. Regulatory breach followed closely at 68%, reflecting continued concern around compliance obligations and enforcement exposure. This increase from 62% in 2025 may appear counterintuitive given the deregulatory environment under the Trump Administration, but it likely reflects the complexity and uncertainty that the evolving regulatory landscape creates for companies seeking to maintain compliance.

The United States Securities and Exchange Commission (SEC) under the Trump Administration has continued to scale back the aggressive enforcement approach that characterized the Biden-era SEC under Chair Gary Gensler, moving to roll back rulemakings including effectively shelving the SEC’s climate-related disclosure rules and abandoning proposed rules related to human capital management disclosure and corporate board diversity.

Of particular note, the executive order issued in February 2025 announcing a “pause” on enforcement of the Foreign Corrupt Practices Act remains in effect, with the Attorney General having issued revised enforcement guidelines favoring a more restrained approach. Companies would be well-advised to maintain robust compliance programs regardless of the current enforcement posture, given that the Foreign Corrupt Practices Act’s (FCPA) five-year statute of limitations means violations committed during this period could be prosecuted by a future administration.

At the same time, state attorneys general have stepped up enforcement activity to fill perceived gaps left by reduced federal oversight, creating a complex compliance environment in which companies must navigate both a more permissive federal regulatory regime and potentially more aggressive state-level enforcement. While cyber risks clearly dominate the rankings, these results suggest that foundational governance disciplines retain a critical place in director and officer oversight in North America.

AI risk: A dramatic rise

One of the more notable shifts in the 2026 survey is the elevated importance assigned to artificial intelligence. AI and machine learning were rated as very or extremely important by 72% of North America respondents, placing AI firmly within the region’s top five risks. This represents a 30-percentage-point surge from just 42% in 2025 — the largest single-year increase for any risk in this year’s North America results — reflecting the rapidly growing recognition among directors and officers that artificial intelligence presents both transformational opportunity and significant liability exposure.

The concern is well-founded: according to Cornerstone Research’s Securities Class Action Filings, 2025 Year in Review, 16 AI-related securities class actions were filed in 2025, a slight increase from the 15 such cases filed in 2024, which itself represented more than double the seven cases filed in 2023. These lawsuits increasingly target so-called “AI washing,” where companies allegedly overstate AI capabilities to enhance their business prospects and inflate share prices.

Among respondents identifying AI as a material concern, the most frequently cited issues included AI generated errors and misinformation (51%), AI enabled fraud and social engineering (40%), strategic failure to adopt AI (37%), weak governance and uncontrolled AI use (32%) and poor data quality and bias (26%). The regulatory landscape for AI remains fragmented in the United States.

Under the Trump Administration, it appears unlikely that comprehensive federal AI regulation will be adopted anytime soon, with the Administration continuing to favor a light-touch approach aimed at promoting AI technological advancement. In December 2025, the President issued an executive order establishing a national policy framework for artificial intelligence, further signaling the federal government’s preference for facilitating innovation over prescriptive regulation. However, state-level activity continues apace: during 2024 and 2025, virtually every state introduced AI-related bills and a growing number of states have enacted broad AI legislation. The result is an increasingly complex patchwork of state regulations that may create significant compliance challenges for companies operating across multiple jurisdictions, particularly those with inadequate AI governance frameworks. These responses suggest that boards are increasingly grappling with both the operational risks associated with AI deployment and the longer term competitive risks associated with delayed or ineffective adoption.

Supply chain risk enters the picture

Rounding out the top risk group, supply chain issues were identified as very or extremely important by 66% of respondents. This risk was not among the top seven in last year’s North America results and its emergence reflects the growing recognition that supply chain disruptions pose direct risks to directors and officers — not only operationally but also from a liability and governance perspective.

The current environment has placed unprecedented pressure on corporate supply chains. According to a Thomson Reuters report, 72% of trade professionals identified U.S. tariff volatility as the most impactful regulatory change in 2026, a dramatic increase from 41% the previous year. The Trump Administration’s tariff policies — including sweeping tariffs on goods from China, Mexico, Canada and other trading partners — have created sustained uncertainty that affects sourcing, manufacturing and distribution strategies across industries.

One industry report found that 86% of companies reported experiencing a supply chain loss in the past year, with rising material costs, geopolitical instability and tariff and trade disputes cited as the top three drivers of disruption. PwC’s 2025 Annual Corporate Directors Survey found that virtually all industrial products directors expressed concern about geopolitical instability, with trade policy and tariffs identified as the top external barrier to growth. Nearly two-thirds of directors reported that their boards discussed supply chain management at every meeting, yet nearly half said their boards needed to spend more time on the issue.

For directors and officers, the D&O implications of supply chain disruption are multifaceted: failures to adequately disclose supply chain risks, inadequate board oversight of supply chain resilience and the cascading financial impacts of disruption can all give rise to securities claims and derivative litigation.

Litigation risks remain elevated

Civil litigation and third party claims were also identified as meaningful areas of exposure, though they ranked just outside the top tier for North America. According to Cornerstone Research’s Securities Class Action Filings, 2025 Year in Review, plaintiffs filed 207 new securities class actions in 2025, a decline from 226 filings in 2024. However, the overall size of filings increased substantially: Disclosure Dollar Loss surged to a record $694 billion in 2025, up sharply from $429 billion in 2024, while Maximum Dollar Loss rose to $2,862 billion, its third-highest level on record. The median securities class action settlement amount reached $17.3 million, a nearly three-decade high.

Derivative actions continue to be a significant concern for directors and officers and their insurers, with large cash settlements in derivative cases remaining a particular worry, especially as companies may not be able to indemnify for such settlements. It is also worth noting that the decrease in SEC enforcement activity could give rise to a more aggressive plaintiffs’ bar, eager to pursue claims that the SEC may be less inclined to bring under the current administration. These findings indicate that litigation risk remains an important concern relative to cyber, governance and operational risks.

ESG risks: A shifting landscape

Environmental, social and governance (ESG) risks continue to appear among many of the surveyed subjects that ranked in North America, though the relative weight of these concerns is evolving. Health and safety (80%) and systems and controls (72%) represent the social and governance categories that ranked highest, while regulatory breach (68%) also reflects governance concerns.

Notably absent from this year’s top seven is diversity, equity and inclusion, which ranked number seven in 2025 at 54%. This shift likely reflects the continued impact of anti-DEI political pressures in the United States, including the Trump Administration’s executive orders targeting “illegal DEI” and the Department of Justice’s (DOJ) directives to investigate companies maintaining certain DEI policies. The evolving legal and political environment around DEI presents a complex challenge for companies: while federal pressure has intensified against certain DEI practices, many shareholders, employees and customers continue to support diversity initiatives, creating potential liability exposure regardless of the approach a company takes.

Risks in the environmental categories continue to be viewed as less important by North America respondents than those in other global regions. Under the current Administration, the SEC’s climate-related disclosure rules have been effectively abandoned; however, companies should not assume that environmental disclosure obligations have disappeared entirely. California’s climate disclosure laws remain in effect (pending court challenges) and a number of other states — including Illinois, Minnesota, New York and Washington — are considering similar legislation. Moreover, companies doing business in the European Union remain subject to the EU’s sustainability disclosure requirements.

D&O insurance: Board preparedness under scrutiny

The survey also provides insight into directors’ and officers’ insurance priorities and board preparedness. Among North America respondents, claims related considerations – particularly claims control and settlement – were cited as key areas of focus, alongside dispute resolution with insurers, choice of defense counsel and coverage for cyber related claims. This emphasis suggests a strong awareness of how D&O policies perform once a claim arises, rather than an exclusive focus on limits or headline coverage terms.

Globally, respondents expressed strongest confidence in their fellow board directors’ ability to oversee financial performance monitoring and reporting (84%) and purpose and strategy development (80%), while confidence was notably lower for AI (54%), broader sustainability (51%) and climate risk and transition (48%). The low confidence in AI oversight is particularly notable given that AI has surged into the top five risk concerns in North America, suggesting a meaningful gap between perceived risk and board-level readiness to manage that risk.

The survey further found that 33% of respondents globally considered operational resilience to be within the top five issues requiring more time or having greatest materiality to their business, with increased risk exposure (including third-party and supply chain risk) cited as the most concerning aspect of operational resilience at 39%.

Looking ahead

Taken together, the 2026 North America results point to a mature risk environment. Long standing exposures such as cyber risk, governance and health and safety retain a central place in board oversight, while emerging risks – most notably artificial intelligence – are quickly becoming embedded in mainstream board level discussions rather than treated as peripheral or speculative concerns. As the risk environment grows more complex, boards will need to ensure they have the skills, information and governance structures to exercise effective oversight — particularly in areas such as AI and operational resilience, where the survey data suggests that board preparedness may not yet match the magnitude of the risk.

*This article first appeared on the Willis website at https://www.wtwco.com/en-us/insights/2026/07/global-directors-and-officers-survey-report-2026-north-america

In Episode 7 of the D&O Diary Podcast Series, we sat down with Stephen Sills, Founder and CEO of Bowhead Specialty, to discuss the evolution of the D&O insurance marketplace and the lessons Stephen has learned throughout a career spent building, leading, and growing successful insurance organizations.

Few industry leaders have as broad a perspective on the D&O marketplace as Stephen. Drawing on decades of experience across multiple market cycles, he shared his views on how the industry has evolved, the challenges facing underwriters today, and the trends that are likely to shape the market’s future. Our conversation explored the many changes that have transformed the D&O landscape, from shifts in underwriting philosophy and market conditions to the growing role of technology and data-driven decision-making.

Stephen also offered valuable insights into the factors driving today’s market, including the increasing complexity of risk assessment, emerging risks such as artificial intelligence and AI-related litigation, and the ways underwriters are adapting to a rapidly changing environment. In addition, he reflected on the importance of leadership, organizational culture, and talent development in building high-performing and enduring insurance businesses.

For insurance professionals, underwriters, brokers, and industry leaders alike, Stephen’s observations provide a compelling look at where the D&O marketplace has been, where it stands today, and where it may be headed next.

We would like to thank Stephen for joining us and for sharing his experiences and perspectives. We hope you enjoy this latest episode of the D&O Diary Podcast Series.

🎧 Listen now on:

Apple Podcasts: https://podcasts.apple.com/us/podcast/the-d-o-diary-podcast/id1896880954?i=1000789802728

Spotify: https://open.spotify.com/episode/5PjlanMhi3yWXOaLEauyPr?si=IplZQPbqQLKdvBebC-MnWw

📺 Watch on YouTube: https://youtu.be/XVfIzLBwueM

If you enjoy the podcast, please consider following the series and sharing it with colleagues. We also welcome your suggestions for future topics.

Follow us on LinkedIn here to be notified when new D&O Diary posts are published.

Artificial intelligence has generated considerable discussion about operational, regulatory, and compliance risks that may translate into D&O underwriting exposure. An August 27, 2026, ruling allowing a securities class action against CVS to proceed highlights a growing source of securities litigation risk arising when AI-enabled business processes materially contribute to financial performance. The Southern District of New York granted in part and denied in part CVS’s motion to dismiss, permitting claims to proceed based on allegations that the company failed to disclose material information regarding the role AI-assisted prior authorization processes allegedly played in generating cost savings and supporting profitability.

The CVS case is noteworthy not only because of the court’s ruling, but also because of how the underlying allegations evolved. The original securities class action complaint focused primarily on alleged forecasting shortcomings, rising Medicare Advantage utilization, and the adequacy of the company’s financial guidance. The amended complaint, however, expanded the fraud theory to center on allegations that CVS failed to disclose the extent to which AI-assisted prior authorization processes contributed to cost savings, profitability, utilization trends, and other key financial metrics.

As discussed below, the plaintiffs’ amended allegations and surviving claims underscore how AI-related business practices can create D&O exposure.

The CVS SCA

The original securities class action complaint, filed on July 12, 2024, was brought on behalf of a putative class of CVS investors and asserted claims for securities fraud under Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5, as well as Section 20(a) control-person liability claims against certain executives. The complaint focused primarily on allegations that CVS and senior executives misled investors about the Health Care Benefits segment by using forecasts that failed to adequately account for rising medical costs and Medicare Advantage utilization. According to the complaint, these deficiencies caused CVS to overstate profitability and issue misleading guidance regarding the segment’s financial performance, leading investors to purchase securities at artificially inflated prices.

The amended securities complaint, filed on March 4, 2025, asserts claims under Section 10(b) and Rule 10b-5, along with Section 20(a) claims against senior executives. The complaint also substantially broadened the alleged fraud theory, contending that CVS misled investors about the drivers of its Medicare Advantage performance by concealing the extent to which AI-assisted prior authorization processes and related claim denial practices allegedly reduced medical costs, lowered utilization, and supported profitability. The amended complaint also alleges that CVS made misleading statements concerning regulatory compliance, the responsible use of AI, and the adequacy of its financial guidance.

Notably, it was this AI-focused disclosure theory, rather than many of the plaintiffs’ original forecasting and utilization allegations, that ultimately survived the motion to dismiss.

The Ruling

The Southern District rejected several of the plaintiffs’ theories, including allegations that CVS’s use of AI violated Medicare regulations and claims based on the company’s statements regarding its commitment to “responsible AI,” which the court found to be nonactionable corporate puffery. However, the court allowed claims to proceed based on allegations that CVS identified specific drivers of its financial performance while omitting information about the role AI-assisted prior authorization processes allegedly played in generating cost savings and profitability. The court further concluded that plaintiffs had adequately alleged that the omission of information about those processes could have rendered other statements about the company’s financial performance misleading.

Update: Following the court’s August 27, 2026, ruling, CVS filed a Motion for Reconsideration on September 10, 2026, seeking dismissal of the remaining claims. CVS argues that the court overlooked allegations indicating that AI tools were used to auto-approve, rather than deny, prior authorization requests and that these alleged errors undermine the surviving claims.

Discussion

One of the most significant features of the CVS case is the transformation of the plaintiffs’ theory from a traditional forecasting and utilization case into an AI-related disclosure case. The original complaint focused on alleged forecasting failures, rising Medicare Advantage utilization, and misleading guidance. The amended complaint shifted the focus to allegations that CVS failed to disclose the extent to which AI-assisted prior authorization processes contributed to cost savings, lower utilization, and profitability.

That evolution may be significant because it reflects a broader shift in AI-related securities claims. Unlike earlier cases that focused on representations about AI capabilities or strategy, the CVS case centers on whether AI-enabled processes became sufficiently important to a company’s operations and financial results that investors were entitled to understand their role. Increasingly, the question for securities plaintiffs may not be whether a company uses AI, but whether AI materially contributes to the results reported to investors.

The CVS case aligns with a growing wave of 2026 AI-related securities suits discussed on The D&O Diary, including actions against Rackspace and CoreWeave, that focus on the disclosure of AI’s operational and financial consequences rather than alleged misrepresentations about AI capabilities. In each case, the central issue is whether investors received an accurate picture of AI’s impact on business performance. The surviving claims are based on allegations that CVS failed to disclose the contribution AI-assisted prior authorization processes allegedly made to cost savings, utilization trends, and profitability, making the significance of AI-enabled processes, rather than the existence of the technology itself, the key disclosure issue.

CVS arguably goes a step further. Rackspace and CoreWeave focus on disclosures surrounding AI-related strategies and investments, while CVS focuses on whether AI-enabled operational processes became a material contributor to financial results. The CVS case is also notable because the evolution of the allegations appears to have been effective for plaintiffs’ counsel. While the original complaint focused on forecasting failures, utilization trends, and guidance, the amended complaint reframed the case around the alleged contribution of AI-assisted prior authorization processes to CVS’s financial performance.

In allowing the claims to proceed, the court concluded that plaintiffs plausibly alleged that those AI-assisted processes were important enough to CVS’s results that omitting their role could have rendered other statements misleading. As a result, D&O underwriters may increasingly need to ask not only whether a company uses AI, but whether AI is a material driver of reported results and whether investors have been adequately informed of its contribution.

One of the recurring issues in D&O coverage litigation is whether an individual director or officer was acting in an insured capacity when the conduct that gave rise to a claim occurred. Because directors and officers often serve in multiple roles, as executives, shareholders, investors, lenders, or guarantors, the capacity question can be complex, but the answer can be coverage dispositive.

An August 10, 2026, unpublished Eighth Circuit decision highlights the coverage-determinative importance of the insured-capacity requirement. The appellate court held that claims arising from personal guarantees executed by three company executives fell outside the scope of a private-company D&O policy because the executives assumed the obligations personally rather than solely in their capacities as corporate officers.

As discussed below, the case highlights important insured-capacity considerations and private company D&O coverage issues arising from executives’ personal guarantees of company debt.

A copy of the decision can be found here.

Background

Bela Flor Nurseries obtained two business loans in 2022, one from Agrifund, LLC and another from Ball Horticultural Company.

Three company executives signed the loan documents on behalf of Bela Flor. The loan agreements identified the company as the borrower and reflected that the executives were signing in their corporate capacities. The executives also executed separate guarantee agreements.

The Agrifund document was titled “Guaranty Agreement” and identified each executive as a “GUARANTOR,” while the Ball Horticultural document was expressly designated a “Personal Guaranty.” Unlike the underlying loan documents, the guarantee agreements did not reference the executives’ corporate titles.

After Bela Flor defaulted, the lenders sued the executives individually to enforce the guarantees. The executives sought coverage under the company’s private-company D&O policy. The insurer denied coverage and commenced a declaratory judgment action seeking a ruling that the policy did not require it to defend or indemnify the executives.

The policy provided coverage for claims arising from a “Wrongful Act” committed by an “Insured Individual.” The policy defined an Insured Individual to include company executives, but only while acting “solely” within their capacities as executives on behalf of the insured entity.

The district court granted judgment on the pleadings in the insurer’s favor, and the executives appealed.

The Eighth Circuit’s Decision

The Eighth Circuit affirmed.

Applying Missouri law, the court held that the guarantee agreements demonstrated the executives’ intent to assume personal liability. The court emphasized that the guarantees neither identified the executives’ corporate offices nor suggested that they were signing on behalf of Bela Flor.

The court contrasted the guarantees with the underlying loan agreements, which clearly identified Bela Flor as the borrower and reflected that the executives were signing in representative capacities.

The court also focused on the commercial purpose of a personal guarantee. If the executives had signed only in their corporate capacities, Bela Flor effectively would have guaranteed its own debt. As the court observed, that interpretation would render the guarantees “redundant, illusory, absurd, and therefore unreasonable.”

Because the liabilities arose from the executives’ personal guarantees rather than from conduct undertaken on behalf of the company in their capacities as officers, the court concluded that they were not acting solely within their insured capacities. Accordingly, the claims fell outside the scope of coverage provided by the company’s private-company D&O policy.

Discussion

The Eighth Circuit’s decision is the latest in a long line of cases emphasizing the importance of the insured-capacity requirement in D&O insurance. D&O Diary readers are familiar with the “basic value proposition” of D&O insurance: D&O policies are intended to protect directors and officers for claims arising out of their managerial conduct on behalf of the insured company, not for liabilities they assume in other capacities. The question in these cases is often not whether the challenged conduct somehow benefited the company, but whether the individual was acting in an insured capacity when the obligation arose.

What makes the decision involving Bella Flor noteworthy is that its executives’ actions were unquestionably related to company business. They signed the guarantees to help Bela Flor obtain financing. Nevertheless, the court focused on the source of the liability being asserted. The lenders were seeking recovery not because of anything the executives did as corporate officers, but because they personally agreed to repay company debt if the company defaulted. In that respect, the liability arose from their status as guarantors rather than from their managerial responsibilities.

The court’s reasoning closely tracks a Washington appellate decision discussed over a decade ago by The D&O Diary, in which a CEO’s personal guaranty of company indebtedness likewise fell outside the scope of D&O coverage. In both cases, the courts recognized that treating a personal guaranty as an insured corporate act would effectively mean that the company was guaranteeing its own debt, defeating the purpose of the separate guaranty altogether.

For D&O underwriters, the Bela Flor coverage case offers several useful takeaways. First, it illustrates that personal guarantees remain a meaningful source of executive exposure, particularly in private-company and middle-market financing transactions. While those obligations typically fall outside the scope of traditional D&O coverage, claims involving personal guarantees can nevertheless generate coverage disputes and defense-cost demands. Second, the decision underscores the importance of insured-capacity wording. Policies that limit coverage to individuals acting “solely” in their capacities as directors or officers may produce different outcomes than forms employing broader formulations. Finally, the case highlights that private-company executives frequently operate in multiple capacities, creating potential coverage questions whenever claims involve shareholder, lender, investor, guarantor, or sponsor-related activities.

Notably, the Eighth Circuit resolved the dispute solely on insured-capacity grounds and therefore did not address other defenses that often arise in guaranty-related coverage disputes. Courts confronting similar claims may also be asked to consider whether repayment of a voluntarily assumed debt constitutes covered “Loss” or whether contractual liability provisions independently preclude coverage. Those issues remain important considerations for underwriters and claims professionals alike, even though they were not necessary to the outcome here.

Ultimately, the decision reflects the continuing importance of insured-capacity issues in D&O insurance. Although the facts here presented a relatively straightforward coverage dispute, similar questions frequently arise when executives act simultaneously as officers, shareholders, lenders, investors, guarantors, or sponsor representatives. As financing structures become more complex, capacity-related disputes are likely to remain an important area of focus for D&O insurers, policyholders, and underwriters.