In a recent post (here), I wrote about a lawsuit that had just been filed against Microsoft’s board, alleging that the company’s directors had violated their fiduciary duties by knowingly allowing its AI development efforts to engage in copyright infringement. The case, I said, represented an example of “silent AI” – that is, the seepage of AI-related matters into various insurance coverages that were not consciously intended to provide coverage for certain exposures. The case showed how a matter that would not typically be covered under a D&O policy (copyright infringement) can translate into a potentially covered matter (a breach of fiduciary duty lawsuit).

In the latest example of this kind of lawsuit, a plaintiff shareholder has filed a derivative lawsuit against the board of Nvidia, alleging that its directors knowingly permitted its AI models to violate copyright holders’ rights and allowed violations of the Illinois Biometric Information Privacy Act (BIPA). Nvidia, the complaint alleges, has been the target of numerous copyright infringement actions, as well as class actions brought for alleged BIPA violations concerning individual voiceprints. The derivative lawsuit seeks to hold the company’s directors liable for the company’s “potentially massive liability and related costs and reputational damages” that the company faces in the underlying litigation. As discussed below, the new Nvidia derivative lawsuit, which may be found here, represents yet another example of “silent AI” in operation in the D&O context.

Background

Nvidia is best known as the manufacturer of computer-graphics hardware, particularly for its Graphics Processing Units (GPUs), but it has recently expanded into software and hardware for training and operating Artificial Intelligence (AI) software programs. Nvidia’s hardware and software are used by all “Frontier AI” companies that develop the most advanced AI systems. Nvidia AI models include multiple AI software programs called Large Language Models (LLMs).

The Lawsuit

The derivative complaint alleges that the LLMs were trained using copyrighted materials pirated from many sources. Among other things, the source materials allegedly included thousands of hours of human speech recordings. The human voice recordings allegedly were used in violation of BIPA (among other things, by failing to identify the speakers and to provide written notice or obtain a release).

The complaint alleges that the company’s unauthorized use of copyrighted or protected materials “resulted in multiple copyright holders filing lawsuits against Nvidia based on Nvidia’s failure to compensate them for downloading, copying, storing, or using their copyrighted words … for which Nvidia is now facing potential massive liability.”

The complaint alleges that the defendant directors knew of these issues with Nvidia’s use of copyrighted works without the copyrighted material owners’ permission. The complaint further alleges that the defendant directors were “well aware” of the company’s potential liability for copyright infringement, as well as potential liability for BIPA violations. Both the alleged copyright and BIPA violations have resulted in massive litigation against the company.

The complaint alleges that Nvidia is “now saddled with having to defend itself” in the litigation and is “facing potentially massive liability and related costs and reputational damages.” The complaint seeks to hold the defendant directors liable for the harm to the company caused by their alleged breaches of their fiduciary duties.

Discussion

This new derivative lawsuit against Nvidia’s board is not the first lawsuit of its type in which a company’s directors were hit with a D&O lawsuit in which it is alleged that the directors violated their fiduciary duties by knowingly allowing the company’s efforts to develop AI models and products to violate copyright holders’ intellectual property rights. As noted at the top of this post, in June 2026, a plaintiff shareholder filed a lawsuit with similar allegations against the board of Microsoft (discussed here). And as discussed here, in April 2026, a plaintiff shareholder filed a similar derivative suit involving similar allegations against the board of Adobe. (Just an aside, this new lawsuit may be the first one to raise similar-type allegations with respect to alleged BIPA violations.)

As I noted with respect to the prior lawsuits, this new lawsuit may represent something of an emerging trend, in which matters that would not otherwise be covered under a D&O insurance policy (in this case, alleged copyright infringement) are tranformed into a claim presumptively covered by the D&O policy, through the means of a follow-on breach of fiduciary duty lawsuit.

There is nothing necessarily new about the phenomenon of a follow-on derivative lawsuit. For example, we recently discussed the follow-on lawsuit trend with respect to the derivative lawsuit filed against Uber’s board, I which the plaintiff shareholder alleged that the defendant directors breached their fiduciary duties by allowing the company to pursue or continue practices and policies that allowed the company to be sued in extensive underlying sexual harassment and assault litigation. The Uber post cited numerous other prior examples in which follow-on suits claimed defendant directors had breached their fiduciary duties by knowingly allowing the company to take actions that resulted in underlying litigation against the company.

These kinds of follow-on lawsuits arguably represent examples of the oft-stated principle in the D&O arena that sooner or later everything becomes a D&O claim.

The common thread among these lawsuits is that the company has taken actions that resulted in underlying litigation against the company (usually litigation of a type that would not be covered by a D&O insurance policy) and that the underlying problem and ensuing litigation were the board’s fault (allegations of a type that presumptively are covered under a D&O insurance policy).

As we noted in connection with the Microsoft lawsuit, these follow-on derivative suits relating to underlying copyright infringement illustrate another phenomenon – that is, “silent AI,” the way in which non-covered underlying AI-related misconduct can seep into the D&O insurance policy through the follow-on fiduciary duty lawsuit. D&O insurers may well feel aggrieved because they never intended the D&O policy to pick up AI-related intellectual property liability.

These developments may be among the many reasons why the possibility of D&O insurers seeking to insert AI-related exclusions into their policies is currently under discussion in the D&O arena. With the D&O insurance market in an extended soft market phase, the possibility of the inclusion of these exclusions in most cases is a remote possibility. However, the insurance market is cyclical, and when the market eventually moves to the next phase, insurers may well seek to restrict their policies’ exposure to “silent AI.”

For now, it seems likely that as prospective litigants identify ways in which they have been harmed by artificial intelligence, the litigants’ claims may at least potentially trigger parallel follow-on lawsuits, in which the underlying allegations are relied upon to support D&O liability claims. My guess is that there will be more lawsuits in the months ahead involving allegations similar to those alleged against the Nvidia board in this new lawsuit.

As The D&O Diary has emphasized in numerous posts in recent months (most recently here), geopolitical issues represent an increasing source of D&O risk. The geopolitical issues include, among other things, sanctions, tariffs, and export controls. Another geopolitical issue that can have an impact on D&O risk is the enforcement of anti-money laundering (AML) laws. In the latest example of AML enforcement translating into D&O risk, in late July a plaintiff shareholder filed a securities class action lawsuit against British money transfer technology company Wise Group, a company whose U.S. bank charter application was denied due to AML concerns. A copy of the July 31, 2026, complaint can be found here.

Background

Wise Group is a U.K.-based technology company concentrating on cross-border money and currency transfers. On May 11, 2026, Wise’s ordinary shares transferred to Nasdaq from the London Stock Exchange. The company said it made the move to the U.S. market as part of an effort to try to target the U.S. for its money transfer business. The company also expressed its intent to seek a U.S. bank charter.

The subsequently filed securities lawsuit complaint alleges that at the time the company made its U.S. move, it “materially understated the regulatory risk facing the Company, given that it was under active investigation by Belgian authorities.” The Company also “materially understated the chance that Wise would not receive a national bank charter from the Office of the Comptroller of the Currency … in the U.S. as a result of ‘longstanding,’ material and pervasive concerns with Wise’s anti-money laundering …protocols, and inadequate efforts to prevent terrorist financing, which were either known to Defendants or should have been known to Defendants.”

On June 1, 2026, Reuters published an article reporting that the value of the company’s shares had declined on news of a Belgian money-laundering investigation, reportedly involving more than half a billion euros ($582.5 million) in suspicious transactions. The Reuters article reported that the investigation “began last year and is nearing completion, concerns potential money laundering offences, with alleged links to fraud, corruption, and drug trafficking.” The story also noted allegations that the company’s services were “used by international criminal organizations.” The complaint alleges that the company’s shares fell on this news.

On July 24, 2025, the Wall Street Journal published an article reporting that the U.S. banking regulator had denied the company’s application for a banking charter “citing long-standing deficiencies in anti-money laundering and countering of the financing of terrorism.” The company ‘s share price fell further on this news.

The Lawsuit

On July 31, 2026, a plaintiff shareholder filed a securities class action lawsuit in the Southern District of New York against Wise and certain of its officers. The complaint purports to be filed on behalf of a class of investors who purchased the company’s shares between May 11, 2026, and July 23, 2026.

The complaint alleges that the defendants made false or misleading statements or failed to disclose that: “(1) in order to have a successful debut on the NASDAQ, Defendants materially understated Wise’s regulatory risk as a result of its materially deficient anti-money laundering efforts, as well as insufficient efforts to prevent the financing of terrorism; and (2) as a result, Defendants’ statements about Wise’s business, operations, and prospects were materially false and misleading and/or lacked a reasonable basis 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 class.

Discussion

Although the focus of the complaint is Wise company’s alleged violation of anti-money laundering laws, the underlying allegations in fact relate to host of alleged violations of various cross-border laws and enforcement regimes, including those involving corruption and terrorism. The underlying allegations embody a series of cross-border concerns, all of which are magnified in the current fraught geopolitical environment.

While the current circumstances are an important element of the seriousness of the concerns involving the Wise company, it should also be noted that it is not necessarily a new development that alleged AML law violations can lead to D&O claims activity. For example, in January 2025, the money transfer company Block was hit with a securities suit based on allegations that the company’s failure to maintain AML protocols had created a “haven for criminal and illicit activities.” In our blog post (here) about the Block lawsuit, we linked to numerous prior securities suits filed based on underlying AML, export controls, or trade sanctions violations.

In light of the prior lawsuit filings, it could be argued that the issues underlying this complaint are not new. However, I believe that in the current geopolitical environment, these issues are even more complicated than in the past.

Geopolitical issues arising from the war in Ukraine and the conflict in Iran; the strains arising from the closure of the Strait of Hormuz; the trade war raging based on U.S. tariffs and other countries’ countermeasures; and tensions arising from cross-border migration, among many other things, make for an unpredictable and potentially changeable global business environment.

As we have noted in our recent posts discussing geopolitical issues and their impact on the D&O arena, the geopolitical issues are becoming an increasingly important source of D&O risk and increasingly are translating into D&O claims. The geopolitical issues increasingly are impacting companies’ operating circumstances and financial results, as well as companies’ share prices, creating an environment in which D&O claims are increasingly likely to emerge.

There may or may not be further AML-related lawsuits filed in the coming months, but it seems likely that there will continue to be D&O claims arising from underlying geopolitical issues in the weeks and months ahead.

It is worth noting that this company had been a U.S.-listed company for only about three months when it was hit with this securities class action lawsuit. (Indeed, the first day of the proposed class period is in fact the day the company’s shares began trading in the U.S.) If nothing else, this sequence of events shows the heightened litigation exposure for companies whose shares are listed on U.S. exchanges.

The latest episode of The D&O Diary Podcast is now available. Kevin LaCroix and Sarah Abrams are joined by their first podcast series guest, Marissa Streckfus, Vice President & Claims Manager at RT ProExec, to discuss the current private company D&O claims environment.

The conversation covers a range of topics, including private company business disputes, increasing antitrust exposures, bankruptcy-related claims, and the ways in which D&O policy structure can affect claims resolution. The episode also examines practical claims handling issues, including notice requirements, interrelated claims concerns, and other recurring coverage challenges.

Drawing from her claims management experience, Marissa provides practical observations and insights that will be valuable to brokers, underwriters, risk managers, and claims professionals alike.

🎧 Listen now on:

Spotify: https://open.spotify.com/episode/3QcZhIBbwN3y3j79lKYrmY?si=veCwj827Q9uPih5f5tYnnw

Apple Podcasts: https://podcasts.apple.com/us/podcast/the-d-o-diary-podcast/id1896880954?i=1000780873203

📺 Watch now on YouTube:  https://youtu.be/KFUXtA3VG8I

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: The D&O Diary now has its own LinkedIn page. The D&O Diary’s LinkedIn page can be found here.

In the following guest post, Professors Benjamin Edwards and Nancy B. Rapoport, of Boyd School of Law, UNLV, present their views that a corporate law loophole in advancement and indemnification rules can force companies to pay exorbitant legal fees and even unreasonable personal expenses for directors’ defenses. The authors contend that courts should impose stricter scrutiny to prevent unethical billing practices and protect shareholders. We would like to thank Ben and Nancy for allowing us to publish their article as a guest post on this site. Here is their article.

***********************************

In a recent D&O Diary guest post, John McCarrick discussed the fees and expenses associated with defending a company’s two founders against both a criminal case (which resulted in the founders’ convictions—currently being appealed) and a civil fraud case.   The law firms handling the founders’ defense have been accruing astronomical fees (around $136 million) and have sought reimbursement for expenses that included, as Mr. McCarrick highlighted:

• Food and snacks: Over $530 for gummy bears and a $581 dinner that included a $161 seafood tower.
• Travel and luxury: More than $25,800 in luxury hotel upgrades and roughly $3,000 in first-class airfare.
• Personal items: Charges for cellulite butter, a Cookie Monster toddler toy, and a pet hair roller.
• Subscriptions: Monthly Spotify charges and other personal effects.

May corporations be compelled to pay even these expenses? Delaware, Nevada, and the Model Business Corporation Act (MBCA) all authorize corporations to bind themselves to advance payments for directors defending themselves against claims for good reasons.  Commentary to the MBCA stresses that “adequate legal representation often involves substantial expenses during the course of the proceeding and many individuals are willing to serve as directors only if they have the assurance that the corporation will advance these expenses.”  Surely competent directors will serve even if they cannot be guaranteed that their possible future defense team will be able to pass through their cellulite butter charges to the company.

Companies forced to make advancement payments cannot be reasonably assured that they will be able to recover these fees and expenses if it turns out that an unfaithful director is not entitled to indemnification.  Delaware, Nevada, and the MBCA all require directors seeking advancement to promise to repay if it is later determined that they were not properly entitled to indemnification, but these hollow promises do not make shareholders whole.  Advancement contracts need not require that a director be able to pay the full bill should the director ultimately not be entitled to indemnification.  A director’s ability to mount a defense should not turn on how much money he or she has available to pledge.

Yet focusing narrowly on a corporation’s contractual payment obligations or a director’s repayment capacity misses another important restraint on run-away billing.  Go back and look at those expenses again and consider what ethical attorney would ever submit them.  Under any state’s version of the rule about reasonable fees (the Model Rules analog is Rule 1.5), none of these expenses would be reasonable, even with client consent. 

Imagine a world in which expenses like these were pushed across a lawyer’s desk to a well-heeled client paying the fees out of the client’s own budget.  Any client would go ballistic, and with good reason.  None of these expenses were necessary, and all signal a galling sense of entitlement.

One of us has served as a fee examiner for decades, and she always uses expenses like this as a signaling function:  with expenses this shameless, what billing dysfunction lurks in the “fees” part of the lawyers’ bills?  How many lawyers trailed along in useless meetings or hearings, with no real role to play other than multiplying the hours reflected in the bill?  How many lawyers’ hands touched each document to “review and edit” it, tweaking only a few words?  She’d be willing to bet that the bills included the junk phrases of “attention to” and “worked on” and would also be willing to bet that the incidents of rounded hours (hours ending in x.0 or y.5) were higher than statistically normal.  (Rounded hours can often indicate that a professional wasn’t tracking time contemporaneously and just guessed at the total time.)  Entitled expenses and bloated fees are an example of the failure to exercise billing judgment before a bill gets metaphorically pushed across a desk.

John McCarrick correctly points out that corporations must adapt to Delaware’s decision to order advancement here.  Including reasonable sanity checks in advancement provisions may reduce the likelihood that sophisticated parties will find themselves in a similar situation arising out of future contracts. 

But what about all the existing advancement provisions without any clear limits?  Ultimately, courts should not allow themselves to become complicit in authorizing unreasonable billing practices.  To be clear, state ethics rules should not be used to deny an attorney a fair market rate for services rendered. Yet courts must carefully consider whether unusually large fees and absurd expenses cross the ethical boundary.

Artificial intelligence-related securities litigation continues to accelerate, with plaintiffs increasingly targeting not only alleged misstatements about AI products and capabilities, but also companies’ disclosures regarding their investments in AI and the impact of those investments on business operations.  A couple of recently filed lawsuits challenge AI-related spending and capital allocation decisions, which may underscore whether growing investor scrutiny of whether management adequately disclosed the financial risks, costs, and tradeoffs associated with aggressive AI initiatives.

Illustrating this emerging line of AI-related securities litigation, a shareholder lawsuit filed on July 29, 2026, against Rackspace Technology, Inc. (Rackspace), its CEO, and CFO in the Southern District of New York alleges that the company failed to disclose the financial and operational consequences of its enterprise AI strategy. As discussed in more detail below, the Rackspace SCA highlights how increasing scrutiny over companies’ AI-related spending may have significant impact on D&O underwriters.

A copy of the complaint can be found here.

The Securities Class Action Lawsuit

Rackspace is a cloud computing and managed services company that provides infrastructure, hosting, and cloud management solutions, including services that support enterprise AI workloads. According to the Rackspace SCA, the company’s Private Cloud segment, which provides dedicated cloud environments managed by Rackspace, generally generates higher operating margins. By contrast, its Public Cloud segment helps customers deploy and manage workloads on hyperscale cloud platforms, combining providers’ infrastructure with Rackspace’s managed services and support offerings.

The complaint alleges that, on May 7, 2026, Rackspace announced a memorandum of understanding with Advanced Micro Devices, Inc. (AMD) to create an Enterprise AI Cloud for regulated enterprises and sovereign workloads. Allegedly, the strategy would provide specialized infrastructure, governance controls, and computing power needed to support AI applications in highly secure environments. While consistent with Rackspace’s broader cloud-services business, the initiative purportedly represented an effort to expand into AI-focused infrastructure, requiring substantial investments and reallocation of resources from existing business segments.

During Rackspace’s related earnings call, company executives expressed confidence in the company’s growth outlook and reaffirmed full-year 2026 revenue, EBITDA, and cash-flow guidance. According to the shareholder plaintiffs, subsequent developments revealed the financial and operational consequences of Rackspace’s AI strategy.

In June 2026, the company announced an agreement with AMD to deploy AI computing capacity and a workforce reduction affecting approximately 15% of employees as part of a shift toward AI infrastructure and services. Less than a month later, on July 9, 2026, Rackspace allegedly cut its full-year revenue and EBITDA guidance, citing its exit from certain low-margin and legacy offerings, as well as near-term costs associated with AI investments and restructuring.

The complaint alleges that investors reacted negatively to the company’s revised guidance and disclosures regarding its AI-related spending, causing Rackspace’s share price to decline by 33.6%. The shareholder plaintiffs assert claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 and seek damages on behalf of the class.

Discussion

The Rackspace SCA is the latest addition to a growing wave of AI-related securities litigation. As The D&O Diary recently noted, Cornerstone Research’s 2026 Midyear Assessment identified 15 AI-related securities class action filings during the first half of 2026. Including the subsequently filed Wix.com and Rackspace actions would bring the 2026 total to 17. According to Cornerstone AI-related filings represented only 13% of core federal securities class actions during the first half of 2026, but they accounted for a disproportionately large share of investor losses.

Beyond contributing to the growing number of AI-related securities filings, the Rackspace SCA is interesting because it reflects the continuing evolution of the types of claims shareholder plaintiffs are asserting in connection with AI-related disclosures and business decisions. The Rackspace SCA alleges both inadequate disclosures regarding the company’s AI strategy and misstatements about its business outlook after heavy AI investment. Cornerstone classifies AI-related defendants into categories such as AI development, AI usage, AI infrastructure and hardware, and data centers, and the Rackspace SCA appears to fit most naturally within the AI infrastructure and data-center categories.

In addition, the allegations against Rackspace more closely resemble those asserted in the securities lawsuits filed earlier this year against Microsoft in July and Oracle in February. D&O Diary readers may recall that the Microsoft complaint alleges that the company failed to disclose the extent to which its AI strategy would require additional capital investment and the reallocation of CPU and GPU resources from its profitable Azure business to support Copilot and broader AI initiatives.

The Oracle complaint similarly challenges disclosures concerning the substantial capital expenditures, financing needs, and near-term financial pressures associated with the company’s AI infrastructure strategy.  Like those cases, the Rackspace SCA centers on allegations that investors were not adequately informed about the financial tradeoffs and operational consequences of an aggressive AI investment strategy.

For D&O underwriters, the allegations against Rackspace may reinforce the importance of evaluating whether a company’s AI strategy is grounded in realistic assumptions regarding funding, resource allocation, and expected returns. The case also highlights growing expectations that boards and senior management exercise effective oversight of AI-related initiatives and ensure that disclosures, guidance, and internal planning are aligned. As AI-related securities litigation continues to advance, D&O underwriters may want to focus on whether companies have governance and disclosure processes capable of identifying and addressing the financial and operational consequences of significant AI investments.

The Rackspace SCA underscores that AI-related risks may arise not only from what companies say about AI, but also from what they disclose about the costs and consequences of implementing their AI strategies. As AI investments continue to grow, boards, management teams and companies are likely to face increasing scrutiny of the governance and disclosure processes surrounding those initiatives.

One of the most urgent current issues in the D&O insurance marketplace is the question of how artificial intelligence (AI) will impact the D&O liability and insurance landscape. In order to get a sense of the industry’s current thinking on AI-related issues, The D&O Diary, in collaboration with Allianz Commercial, recently prepared and distributed a survey seeking readers’ views on several AI-related topics.

The survey drew 250 responses from industry professionals located in the United States, Germany, the United Kingdom, Canada, and 21 other countries. The strong response provides a detailed picture of how the insurance industry views this new and challenging technological frontier.

The survey questions and their responses fall into two general groups, those pertaining to corporate governance and those pertaining to D&O underwriting.  Respondents were grouped into three primary categories: insurers, brokers, and insured companies.

AI and Corporate Governance

The responses to the survey’s governance-related questions suggest that AI governance has emerged as a significant concern for D&O insurers, brokers, and insured companies. Across all respondent groups, there was strong agreement that AI presents potential D&O exposure and that boards should address AI-related risks through existing governance and oversight frameworks.

There was even stronger agreement among respondents regarding the board’s governance responsibilities. Ninety-four percent of respondents agreed or strongly agreed that boards should approve internal policies governing AI usage. These results reflect an expectation that boards provide oversight of the company’s AI governance framework and related risks.

The strongest consensus in the governance portion of the survey concerned the integration of AI oversight into the broader corporate governance framework. Responses were remarkably consistent across insurers, brokers, and insured companies, with between 95.8% and 100% of each group agreeing or strongly agreeing that boards should ensure AI governance forms part of the company’s overall governance structure. Respondents appear to view AI not as a stand-alone technology issue, but as an enterprise risk that should be addressed through established governance and oversight processes.

The survey responses also provide an interesting perspective on the recent news that pending legislation in Delaware would permit the formation of autonomous companies that would be governed exclusively by AI agents with no human control. The survey responses suggest that industry professionals would oppose this possibility; the responses across all groups suggest that a nearly uniform view that human oversight should remain a requirement even for advanced AI-enabled decision systems.

Respondents also drew a direct connection between governance and claims risk. Overall, 94% agreed or strongly agreed that poor AI governance increases the likelihood of D&O-related claims. As with other business risks, weak controls can contribute to disclosure failures, compliance issues, and other breakdowns that may ultimately give rise to corporate and securities claims. Overall, 85.6% of respondents agreed or strongly agreed that AI-related regulatory, shareholder, and operational claims will significantly affect the D&O claims experience. 

AI and D&O Insurance

The survey responses showed greater divergence when it came to questions of the D&O insurance underwriting implications arising from the advent of AI.

For example, while 91.2% of insurers agreed or strongly agreed that lack of transparency around AI deployment should negatively influence the D&O underwriting assessment, only 59.1% of broker respondents agreed or strongly agreed with this proposition.

One question in which the responses split even within responding groups involved the inquiry whether the existing D&O insurance product needs amendment to adequately address growing AI exposures. About 55.6% of all respondents agreed or strongly agreed the D&O insurance policy needs amendment, while about 44.4% disagreed or strongly disagreed. This response split varied slightly between insurers, brokers and insured companies, but nevertheless was largely consistent for all groups. The survey also allowed respondents to provide written responses about this D&O policy amendment question; the written responses are summarized in a separate section below.

There were other underwriting-related questions where the responses reflected a greater consensus. For example, around 80% of all respondents indicated that they expect D&O underwriters to request additional information regarding applicants’ AI risks and underwriting practices. Interestingly, responses to this question were more or less consistent across all response groups.

The survey also asked respondents to rank order various AI-related risks in order of concern. The responses clustered closely together, making generalizations challenging. However, the responses do seem to show that the respondents consider AI-related Capital Expenditure to be the most significant area of AI-related concern, followed closely by AI Washing, Data Privacy, Regulatory Proceedings, Algorithmic Discrimination, and Intellectual Property. Again, because the rankings of these concerns were close to being evenly distributed, it may be difficult to draw definitive conclusions about how the industry weights the areas of concern.

Respondents’ Written Comments

As noted above, the survey question asking whether the respondent believes the D&O insurance policy needs to be amended to address emerging AI-related risks invited respondents to supplement their answer with written comments. Although not all respondents provided written comments, the comments that were provided offer some interesting perspective.

The predominant view expressed by respondents who provided written comments is that current D&O policies are generally adequate to address insured companies’ AI-related exposures, and that as a general matter AI should be treated as another business, operational, or governance risk rather than a fundamentally new category requiring a major policy redesign. However, the respondents did also express a range of views, from those advocating no policy changes at all to those supporting targeted clarifications, affirmative AI coverage, or even standalone AI liability products. In addition, several commentators expressed the view that more experience and data are needed before the need for D&O policy changes or innovations can be fully assessed.

Here is a representative sampling of the written comments:

While AI is a relatively new technology and undoubtedly presents certain specific challenges, the duties of care and diligence expected of directors and officers are not different from those arising from other business challenges.

The D&O wordings were in the past, at the moment, and will be in the future strong enough.

Insureds are looking for affirmation of coverage not new, additional exclusions.

I would encourage the D&O underwriters not to take an immediate restrictive approach for coverage pertaining to AI related exposures.

I’m unsure changes to policy wordings is required before loss data and jurisprudence answers questions regarding exposure.

Observations About the Survey Results

Allianz Commercial believes the survey results highlight a growing consensus that AI should be viewed not simply as a technology issue, but as a governance and risk management challenge. Respondents drew a strong link between effective AI governance and reduced claims potential, reinforcing the importance of board oversight, accountability and transparency as organisations adopt AI across their operations. The findings also suggest that insurers and insureds will need to engage in more detailed discussions around AI governance practices as part of the underwriting process, with governance frameworks becoming an increasingly important indicator of risk quality.

Dan Holloway, Global Head of PI & Management Liability Commercial, Financial Lines at Allianz Commercial, comments: “The survey results are clear: AI is as much a governance issue as it is a technology issue. From a D&O underwriting perspective, AI governance must be a boardroom agenda item. Directors should be actively overseeing the opportunities and risks associated with AI deployment. As AI becomes embedded in business processes and strategic decision-making, documented policies and effective oversight mechanisms will become increasingly important indicators of risk quality. For insurers, the focus is not simply whether an organisation uses AI, but how effectively it governs it.

“AI does not necessarily create entirely new categories of claims. Rather, it amplifies and reshapes risks that directors and officers already face, including disclosure failures, regulatory investigations, shareholder litigation, intellectual property disputes, data privacy concerns and allegations of inadequate oversight. AI is not a standalone liability. It is a force multiplier, increasing the scale, speed and complexity of existing governance challenges. Companies with mature governance frameworks and strong board oversight are likely to be better positioned to navigate these evolving risks.”

Burkhard Fassbach, an attorney specializing in D&O liability in Germany who participated in the survey’s planning and completion, noted with respect to the survey results that “With the US-China AI race accelerating, Europe risks strategic marginalization. Exclusion from premier frontier AI models would entrench a critical dependency on foreign technology, deepening existing geopolitical vulnerabilities. This gives rise to a new dimension of systemic liability – a ‘sovereignty gap’ that undermines both corporate resilience and long-term competitiveness.”

Conclusion

The insights gathered from this survey provide a valuable baseline for understanding the industry’s current posture toward AI. We are grateful to the 250 professionals who took the time to share their expertise. The survey findings underscore the need for both rigorous corporate oversight and proactive underwriting, and will contribute to continuing industry discussions, including future editions of the Allianz Risk Barometer.

We would also like to express our gratitude to our friends at Allianz Commercial for their collaboration on this project. As the corporate risk landscape continues to evolve, we look forward to continuing the conversation.

In recent years, the D&O Diary has followed the growing debate over whether companies should reincorporate outside Delaware, particularly in states such as Nevada and Texas.  We have also followed Delaware’s efforts to address the trend through measures including the enactment of SB 21 and the Delaware Supreme Court’s decision upholding the statute.

And we queried whether DExit could prove to be a new source of D&O exposure. A newly amended class action complaint against Dropbox may provide yet another example of that risk, as shareholders are challenging Dropbox’s reincorporation to Nevada, alleging that the move was undertaken to protect management and the controlling stockholder from accountability for underlying business and governance decisions.

I want to thank Anthony Rickey of the Margrave Law LLC, who brought this latest DExit-related litigation to my attention with his LinkedIn post here. A copy of the amended complaint can be found here.

Dropbox Litigation

On April 3, 2025, Plumbers & Fitters Local 295 Pension Fund filed a Delaware Chancery Court action against Dropbox, founder and CEO Andrew Houston, and the company’s directors, challenging Dropbox’s planned reincorporation from Delaware to Nevada. The plaintiff alleged that the move was a controller-driven transaction that would reduce shareholder rights while increasing protections for Houston and the board, and also sought a declaration that recent amendments to Section 144 of the Delaware General Corporation Law were unconstitutional. The case is styled Plumbers & Fitters Local 295 Pension Fund v. Dropbox, Inc., et al., C.A. No. 2025-0354.

On July 6, 2026, the plaintiff filed a substantially expanded amended complaint based in part on documents obtained through a Section 220 books-and-records demand. The amended pleading alleges that Dropbox pursued the Nevada reincorporation while undergoing an AI-focused business transformation and facing pressure from activist investor Half Moon Capital, which had challenged both the company’s strategy and Houston’s control through its dual-class voting structure. According to the complaint, the reincorporation was a defensive measure designed to preserve Houston’s control, reduce litigation risk, and shield management from challenges to the company’s strategic and governance decisions.

The amended complaint further alleges that the reincorporation was part of a broader effort by Houston to strengthen his influence over Dropbox. Among other things, it challenges the company’s debt-funded stock repurchase programs, alleges that Houston sold approximately $69 million of stock while the reincorporation was under consideration, and contends that the move deprived shareholders of important Delaware-law protections while expanding protections for directors and officers. The complaint also challenges the board’s decision to exempt Houston from Nevada’s business-combination statutes, arguing that the exemption uniquely benefited him as a controlling stockholder.

The amended complaint also challenges the process and disclosures surrounding the reincorporation. It alleges that the board’s evaluation committee lacked independence, relied on advisors predisposed toward a Nevada outcome, and issued a materially misleading Information Statement that overstated the benefits of Nevada law while failing to disclose legislative developments in Delaware and Nevada that allegedly undercut the stated rationale for the move. The plaintiff seeks rescission of the Nevada reincorporation and restoration of Dropbox’s Delaware domicile or, alternatively, rescissory and compensatory damages for the alleged loss of stockholder rights and benefits conferred on Houston and the other defendants.

Discussion

The Dropbox lawsuit is the latest in a series of shareholder challenges to corporate reincorporations outside Delaware, following notable litigation involving TripAdvisor and Liberty TripAdvisor, The Trade Desk, and Tesla. For D&O insurers, these kinds of claims may create exposure even where the underlying business strategy is not being challenged, because the reincorporation decision itself can become the subject of fiduciary-duty, disclosure, and governance litigation.

Prior reincorporation cases provide important context for the Dropbox litigation. For example, in Maffei v. Palkon, shareholders challenged TripAdvisor’s and Liberty TripAdvisor’s move from Delaware to Nevada, arguing that the reincorporation benefited directors and controlling stockholders by reducing potential liability exposure. The Delaware Supreme Court rejected that argument, holding that a reincorporation approved on a “clear day”—without pending or threatened litigation or an effort to shield a specific transaction—is reviewed under the business judgment rule, and that any future reduction in litigation risk is too speculative to constitute a material non-ratable benefit.

Against that backdrop, the Dropbox case may be viewed as an effort by shareholder plaintiffs to distinguish the circumstances surrounding Dropbox’s Nevada reincorporation from those presented in Maffei. Dropbox shareholders argue that Delaware’s legislative reforms, including SB 21, undercut the company’s rationale for leaving Delaware by addressing many of the concerns that proponents of reincorporation had cited. The amended complaint contends that, if Delaware was already moving in the direction companies claimed to want, the justification for abandoning Delaware became far less compelling. If this argument gains traction, D&O underwriters may need to consider that companies contemplating reincorporation to Nevada or Texas could face heightened scrutiny of both the decision-making process and the rationale for departing Delaware.

Another notable aspect of the amended complaint against Dropbox is the plaintiff’s challenge to Nevada’s oft-cited “predictability” advantage. The Dropbox shareholders argue that the company undercut that rationale when, after reincorporating, it sought to amend its Nevada charter to eliminate jury trials in certain corporate disputes—an alleged acknowledgement that Delaware’s Court of Chancery offers a more predictable forum for resolving fiduciary-duty claims. The case therefore highlights a potential governance paradox: companies leaving Delaware may later seek to recreate some of the procedural protections they abandoned.

Like the earlier TripAdvisor, Trade Desk, and Tesla cases, the Dropbox action suggests that reincorporation may shift litigation risk rather than eliminate it. Instead of challenging operational performance or strategic decisions, plaintiffs may focus on the reincorporation transaction itself, particularly where controlling stockholders receive unique benefits, shareholders lose perceived litigation rights, or the rationale for leaving Delaware can be questioned. As a result, governance features such as dual-class structures, controlling stockholders, activist pressure, significant share repurchases, and changes to shareholder rights may become important indicators of potential D&O exposure.

As Nevada and Texas continue to compete with Delaware for corporate charters, D&O underwriters could increasingly find themselves evaluating not only the legal risks associated with a company’s chosen domicile, but also the litigation exposure arising from the decision to change domiciles in the first place. As the latest chapter in the developing body of reincorporation litigation, the Dropbox lawsuit may be closely watched by companies, shareholders, and D&O insurers alike for further guidance on when a decision to leave Delaware may give rise to viable fiduciary-duty claims.

As we have previously noted (most recently, here), geopolitical issues represent an increasingly important source of D&O risk. A lawsuit filed late last week against the fuel cell and power generation firm Bloom Energy highlights this developing source of risk. In the new complaint, a plaintiff shareholder alleges that the company understated its supply chain exposure to China and understated the extent of its reliance on China for a specific rare earth element, scandium. The company’s share price declined after a short seller’s media outlet published a report claiming that the company was, in fact, reliant on Chinese scandium. A copy of the new complaint against Bloom Energy can be found here.

Background

Bloom Energy designs, sells, and installs solid oxide fuel cell systems for on-site power generation. Scandium is a metal that is usually classified as a rare earth metal. It is used to stabilize the ceramic electrolytes in the company’s solid oxide fuel cells.

According to the complaint, throughout the class period, the company made a series of statements disclaiming its supply chain’s reliance on China. Among other things, the company is alleged to have said “We are not dependent on China for a supply chain,” the “supply chain does not have a significant exposure to China,” and most particularly, “We are not dependent on China for Scandium.”

On July 8, 2026, Hunterbrook Media, the media outlet of short seller Hunterbrook Capital, published a report claiming, among other things, that the company  is “in fact, reliant on Chinese scandium, according to global trade data, Chinese corporate filings, satellite imagery, and Hunterbrook’s messages with Bloom’s suppliers in China.” The report states that Hunterbrook “traced four separate China-linked routes into Bloom’s supply chain” including “scandium oxide shipped directly to its Delaware plant, plus scandium-bearing ceramics and powders flowing through intermediaries in Thailand, Japan, and South Korea.” According to the complaint, Bloom Energy’s share price declined 5.7% on this news.

The Lawsuit

On July 30, 2026, a plaintiff shareholder filed a securities class action lawsuit in the Northern District of California against Bloom Energy and certain of its directors and officers. The complaint purports to be filed on behalf of a class of investors who purchased the company’s securities between February 27, 2025, and July 8, 2026.

The complaint alleges that during the class period, the defendants failed to disclose to investors: “(1) that Bloom Energy obtained scandium through intermediaries who sourced the metal from China; (2) that, as a result, the Company understated the extent to which it relied on scandium from China; 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 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 class.

Discussion

It is nothing new for supply chain-related issues to give rise to securities class action lawsuits. For example, readers will recall that supply chain-related disruptions arising from the pandemic led to a number of supply chain-related securities class action lawsuits; indeed these kinds of lawsuits continued to be filed long after the pandemic itself had officially ended (as discussed, for example, here). Since that time, there have been further supply chain-related suits, as illustrated most recently by the lawsuit filed in May 2026 against the EV company Lucid (as discussed here).

There are important differences between this lawsuit and many (if not most) of the prior lawsuits based on supply chain issues. For starters, this lawsuit is not related to allegations of supply chain disruption. Apparently, the company’s supply chain continued to function and continued to provide the company with its needed scandium.

The key to this lawsuit’s allegations is the company’s claims that its supply chain did not involve Chinese supply, specifically Chinese scandium. The reason the company was disclaiming a Chinese supply chain connection, and the reason the media reports about a supposed Chinese connection were disruptive, has to do with the ongoing global trade wars between China and the U.S.  

The United States and China are engaged in an evolving trade conflict driven by U.S. tariff measures and Chinese retaliatory export restrictions on critical minerals, particularly rare earth metals. Under the current Trump administration, the United States imposed and expanded tariffs on a broad range of Chinese imports with the stated goals of addressing trade imbalances, protecting domestic industries, and reducing reliance on Chinese supply chains. In response, China has increasingly used its dominant position in the rare earth supply chain by tightening export controls on rare earth elements and related processing technologies, materials that are essential for advanced manufacturing, electronics, electric vehicles, renewable energy equipment, and defense systems.

Given these circumstances, this company found it important to emphasize that it had no Chinese supply chain dependence, apparently as a way to reassure investors that it was not vulnerable or susceptible to supply chain disruption. That also explains why the company’s share price declined as news reports circulated that the company supposedly did, in fact, have Chinese connections in its supply chain.

The circumstances involved in this lawsuit illustrate how larger geopolitical issues and global trade concerns can impact companies’ operations and financial results. The case also shows how geopolitical issues can translate into securities class action lawsuits. There have in fact been a number of securities suits filed this year arising out of geopolitical issues, including for example lawsuits relating to companies’ statements about the impact of the Trump administration’s tariffs (as for example with respect to the June 2026 tariff-related lawsuit filed against First Solar, as discussed here).

There is a sense in which the lawsuit is also a tariff-related suit, since at its base the case involves trade conditions that have arisen out of the Trump administration’s tariff policies. However, this case is slightly different than the prior tariff-related suits; this suit is more about the geopolitical and trade circumstances that have arisen in the wake of Chinese retaliatory measures and global trade war that has arising in the wake of the Trump administration’s tariff policies.

All of these cases illustrate the point that geopolitical issues in the current environment are an increasingly important element of D&O risk. Nor are the geopolitical issues related solely to tariff-related issues.

Indeed, a July 31, 2026, Wall Street Journal article (here) illustrates how the conflict in Iran, and the ensuing closure of the Straits of Hormuz, is putting pressure on companies in a wide variety of industries, including industries as diverse as paint, beer, consumer products, as well as aluminum, fertilizer, and, of course, energy. These pressures may affect the operations and financial results of many companies. And, as these companies experience disappointing results, the geopolitical factors causing the problems may well translate into securities class action lawsuits as well.

In other words, it seems likely that in the months ahead, geopolitical factors will remain an increasingly important part of D&O risk.

About Scandium: I have to confess that prior to reading this complaint, I had not thought much about Scandium. In case you are as curious about scandium as I was, here is an excerpt from the search I launched in Copilot about the element:

Scandium (chemical symbol Sc, atomic number 21) is a soft, lightweight, silvery-white metal. It is classified as a transition metal, although it is often grouped with rare earth elements because of its similar geochemical behavior and occurrence in some rare-earth-bearing deposits.

Despite its name association with rare earths, scandium is not especially scarce in the Earth’s crust. The challenge is that it is rarely found in concentrations high enough to mine economically, so virtually all scandium production comes as a byproduct of mining other metals.

Scandium apparently has a few high-value uses, one of which is in “Solid oxide fuel cells, where scandium-stabilized zirconia can improve performance.”

About the Chinese connection, Copilot said: “China is widely regarded as one of the leading producers and processors of scandium and is a major player in global supply. Reports indicate that China has multiple scandium-producing operations and occupies a dominant position in processing critical rare-earth-related materials.”

Interestingly, Copilot also noted the following: “The United States has known scandium resources and has previously produced scandium. Potential sources exist in multiple states and are often associated with other mining operations. However, according to the U.S. International Trade Commission, the U.S. currently has had little or no significant operating primary scandium production capacity in recent years, leaving the country dependent on imports and foreign processing.”

In the following guest post, Ben Dubin, Managing Memberof VC Expert Services, LLC, examines Vice Chancellor Laster’s May 2026 opinion in the Zync v. Porsche case, a decision that highlights the legal and D&O insurance risks for investor-appointed directors and their sponsoring venture firms, particularly when directors are accused of acting as agents of the investor rather than exercising independent fiduciary judgment on behalf of the company. This post is the second of two guest post from Ben discussing D&O risks associated with venture capital board seats. Ben’s prior post on the topic can be found here. We would like to thank Ben for allowing us to publish his articles as guest posts on this site. Here is Ben’s article.

********************

A recent Delaware Court of Chancery decision raises difficult questions about investor-appointed directors, aiding-and-abetting exposure for the appointing investor, and whether either of two D&O insurance programs responds when the alleged wrong is serving the investor rather than the company.

I. The Financing That Never Happened

A venture board seat is usually understood as a mechanism for protecting an investment. In Zync, Inc. v. Porsche Investments Management, S.A., the complaint alleges that a board seat became the mechanism through which an investment destroyed the company.^[1] On May 29, 2026, Vice Chancellor J. Travis Laster of the Delaware Court of Chancery denied the Rule 12(b)(6) motions filed by the Porsche entities and their board designee, allowing all four counts of the complaint to proceed against them.

The story the complaint tells is simple. Zync, a startup offering a cloud-based platform for in-vehicle entertainment, was running out of cash. An outside venture fund proposed to lead an $8 million Series A at a $32 million pre-money valuation; investor demand expanded the round to $10 million at $40 million. The financing required the approval of the director designated by Porsche, the company’s strategic investor. According to the complaint, the designee would not act without instructions from his superior at Porsche. Months passed. When the board finally convened in April 2022, the designee announced that he would vote against the financing, killing the round. A later private equity proposal — restructured as a $4 million loan followed by a $15 million equity investment at a $60 million pre-money valuation, including $3.335 million to buy out Porsche at a premium — collapsed after Porsche allegedly conditioned approval on the fund indemnifying both Porsche and its designee. The company shut down.

At first glance, the dispute looks like a familiar Delaware fiduciary-duty case. For the D&O insurance community, it poses a more complicated question: whose policy protects an investor-appointed director when the alleged wrong consists of serving the investor rather than the company?

II. The Investment and the Governance Rights

Porsche invested $2.9 million through a convertible note and received common shares representing five percent of Zync’s fully diluted equity. A voting agreement committed the company to a three-member board and gave Porsche the right to designate one director for as long as Porsche held at least two percent of the common stock. An investor rights agreement provided that the company could not take specified actions — including issuing equity or debt securities, effecting a merger or dissolution, amending the charter, changing the size of the board, or entering into related-party arrangements — without the approval of the Porsche-designated director.

That structure deserves attention — not because it is exotic, but because it is not. Conventional venture financings typically layer two kinds of blocking rights: protective provisions in the charter, framed as class or series consent rights and exercised by the preferred holders at the stockholder level, and a covenant in the investor rights agreement — the National Venture Capital Association’s model form titles it “Matters Requiring Investor Director Approval” — conditioning specified corporate actions on the approval of the investor’s designated director. Zync’s blocking rights, as the opinion describes them, ran through the second mechanism. The distinction matters because the two instruments sit in very different doctrinal postures. A preferred stockholder granting or withholding consent may ordinarily consider its own interests. A director granting or withholding approval acts as a person who simultaneously owes undiluted fiduciary duties to the company — and, as the court noted, the designee’s exercise of the approval right can be imputed to the appointing investor under ordinary agency principles. Zync is, among other things, a reminder that a standard piece of venture architecture places a powerful veto in fiduciary hands.

Three roles were in play. Porsche was a contractual counterparty with consent rights, generally free to act in its own interest. Porsche’s employee was a Zync director, who was not. And the same individual remained an employee accountable to Porsche management. The collision among those roles drives both the liability analysis and the insurance questions that follow.

III. The Allegations and the Court’s Decision

The decision came at the pleading stage. The court was required to credit the complaint’s well-pleaded allegations and draw all reasonable inferences in the plaintiff’s favor. Nothing has been proven, and the defendants dispute the claims.

Porsche designated Christian Knörle, an executive within Porsche’s venture organization who reported to a managing director of Porsche Investments. The complaint alleges that Knörle repeatedly refused to approve financings without authorization from Porsche; that he delayed board action for months while awaiting instructions; that he conditioned a promised Porsche bridge loan — which shrank from a suggested $750,000 to $290,000 before being withdrawn in favor of demands for a personal guarantee from the founder and an additional board seat — on the company sharing its confidential draft agreement with Mercedes-Benz and internal data concerning other competitors; and that, after the company’s bridge lender sued, he resigned from the board on Porsche’s instruction.

The court held that these allegations state a claim against Knörle for breach of the duty of loyalty. Two features of the analysis stand out.

First, the dual-fiduciary problem. Delaware recognizes “no dilution” of the duty of loyalty where one person holds dual or multiple fiduciary roles.^[2] As a director, Knörle owed fiduciary duties to Zync; as an employee — and therefore an agent — he owed duties to Porsche. When Porsche’s interests diverged from the company’s, it was reasonably conceivable that Knörle faced a disabling conflict, and that he resolved it in Porsche’s favor. The court rejected the argument that Porsche’s note and equity positions aligned its interests with the company’s, reasoning that the complaint adequately alleged competitive incentives: Porsche could benefit more from keeping the company’s technology away from Mercedes and BMW than it would lose by writing off a comparatively small investment. “Chess players make sacrifices all the time,” the court observed.

Second, inaction. The defendants argued that Knörle could not have breached his duties because neither financing was formally put to a vote. The court disagreed: directors can breach their duties through informal action and conscious inaction, and a designee’s refusal to act without investor permission may itself become the fiduciary act under review.^[3] In venture governance, in other words, inaction is not necessarily neutral.

The court also sustained three claims against the Porsche entities: aiding and abetting Knörle’s alleged breaches, intentional interference with the two prospective financings, and breach of the implied covenant of good faith and fair dealing inherent in the investor rights agreement. (A Porsche executive named individually was dismissed for lack of personal jurisdiction in a separate decision issued three days earlier.)^[4]

IV. The Two-Masters Problem

Investor-appointed directors routinely occupy overlapping roles: portfolio-company fiduciary, fund partner or employee, investment-committee participant, monitor of the investment, and — in corporate venture capital — employee of a commercial partner or potential competitor. None of that is improper in itself. Delaware permits directors to consult with the stockholders who designated them and to take their concerns into account, and the Zync opinion cites recent authority acknowledging exactly that.

What the opinion does not countenance is the pattern the complaint alleges: a designee who treated the investor’s instructions as controlling. Venture organizations often speak of “their” board seats and “their” directors. The shorthand is commercially understandable and legally hazardous, because once appointed, the designee is not the investor’s representative seated inside the portfolio company; he or she is a fiduciary of the portfolio company. Statements like “I cannot vote until the investment committee approves,” “headquarters has not authorized this,” or “send us the agreement and the funding will follow” are not automatically wrongful. But Zync shows how each can become evidence that the director’s judgment belonged to someone else.

V. Liability Travels Up the Chain

The development that will matter most to the insurance community is not that the director remained exposed. It is that the claims against the investor survived.

The aiding-and-abetting analysis is the doctrinal heart of the opinion. In In re Mindbody and In re Columbia Pipeline, the Delaware Supreme Court raised the pleading bar for aiding-and-abetting claims against third-party acquirers, requiring actual knowledge and affirmative conduct.^[5] The Zync court declined to extend that protection beyond the arm’s-length setting that produced it. Other alleged aiders and abettors are differently situated, Vice Chancellor Laster explained, and an employer-principal alleged to have directed its employee-agent is the paradigm: the agent’s knowledge and conduct can be imputed to the principal, and instructions can supply knowing participation. The court drew the same relational distinction earlier this year in Calumet Capital Partners LLC v. Victory Park Capital Advisors, LLC — a decision the Zync opinion cites — where the alleged aider and abettor was likewise an investor whose own employee served as its board designee.^[6] The pattern is now difficult to miss: claims against arm’s-length counterparties remain hard to plead, while claims against an investor whose employee occupies the board seat may be considerably easier.

The intentional interference claim survived on related reasoning. An investor’s financial interest in a company would ordinarily privilege efforts to protect its position, but that privilege is unavailable at the pleading stage where the alleged means of interference — causing the designee’s breach of loyalty — are themselves wrongful.

The implied covenant claim is where Calumet does the most work. The investor rights agreement gave Porsche discretionary approval rights exercised through its designee, and, quoting its earlier decision, the court held that a party may not wield a discretionary contractual right “maliciously and without any justification rationally related to the shared contractual purpose.” The court was careful about the limits. Porsche could have used its veto for many rational purposes — concerns about pricing, harm to the company, or even protection of Porsche’s own interests — without facing an implied covenant claim. What the complaint adequately alleged was different in kind: the use of the right for the sole purpose of harming the company.

Finally, the exculpation holding deserves the attention of every lawyer who papers venture financings. The voting agreement contained a provision captioned “No Liability for Election of Recommended Directors,” which Porsche read to shield stockholders and their affiliates from liability arising from a designee’s acts or omissions as a director. The court held the provision too ambiguous to support dismissal — and held, independently, that Delaware law does not permit parties to eliminate liability for intentional and bad-faith acts, whether by contract or through the governance-agreement authority the legislature added as Section 122(18) in 2024.^[7] Provisions of this general kind appear in customary venture documentation. Zync is a caution against reading them as a general liability shield for the appointing investor.

Once claims travel from the board designee to the venture organization, the insurance analysis becomes considerably less straightforward.

VI. The D&O Insurance Questions

The relevant policies are not public, and nothing here is a coverage opinion. The value of Zync for the insurance community lies in the questions its fact pattern forces — many of which readers of this publication will recognize from other contexts.

The portfolio company’s policy. A designee facing these claims would ordinarily tender under the portfolio company’s private-company D&O program. But the claimant here is the company itself, suing its own director — the classic trigger for insured-versus-insured or entity-versus-insured exclusion analysis. Private-company forms vary widely on the decisive details: whether the exclusion reaches claims brought directly by the insured entity; whether insolvency, receiver, trustee, or derivative-claim carve-backs apply once the company has collapsed; whether severability or non-imputation wording affects other potentially applicable exclusions; and whether a Side A difference-in-conditions policy provides broader protection above the tower.

Indemnification and advancement. Delaware law permits advancement of defense costs upon an undertaking to repay, with the scope of any mandatory rights fixed by the charter, bylaws, and indemnification agreements.^[8] But Zync allegedly shut down because it could not raise capital, and a contractual advancement right against an insolvent company has limited practical value — which is precisely the gap Side A protection exists to fill. There is a telling detail in the record on this point: in the final weeks, Porsche allegedly conditioned approval of the private equity financing on the fund indemnifying Porsche and its designee. Whatever else that demand shows, it suggests the participants understood in real time that the existing protection might not be enough.

Conduct allegations. The complaint pleads disloyalty and bad faith, not negligence. That implicates conduct exclusions — fraud, deliberate acts, improper personal benefit — and puts weight on final-adjudication wording, imputation provisions, and the carrier’s obligations with respect to defense costs before any adjudication. Allegations are not adjudications, and the surviving-the-pleadings posture of Zync is exactly the situation those provisions were negotiated to address.

The venture organization’s policy. The designee may also look to the investor’s management-liability program. Private equity and venture capital policies frequently include outside-directorship liability coverage for personnel serving on portfolio-company boards, typically structured on a double-excess basis — sitting above indemnification and insurance available from the portfolio company. That structure generates its own questions on these facts: whether the portfolio company is a scheduled or qualifying outside entity; whether the coverage protects only the individual or also reaches the investor entities facing aiding-and-abetting and interference claims; how the excess attachment operates when the underlying company is insolvent and its own policy’s response may be contested; and whether a board observer would fare differently than a director.

The capacity paradox. The most interesting coverage problem is structural. D&O policies generally insure acts undertaken in an insured capacity, and the two programs here would define that capacity differently — Zync director on one side, Porsche employee on the other. The plaintiff’s theory of liability is that the designee acted as the investor’s agent rather than as the company’s fiduciary. The stronger that allegation becomes, the stronger a carrier’s potential argument that the conduct fell outside the insured capacity, or within a dual-capacity or outside-position exclusion — on either tower. This publication has covered decisions barring coverage for individuals acting in dual capacities;^[9] Zync presents the problem in its purest venture form.

The counterargument is equally substantial. A director does not necessarily leave the insured capacity by acting with an improper motive; the alleged breach may have been possible precisely because the individual exercised the authority of the Zync board seat. Motivation, loyalty, and capacity are related but distinct inquiries, and the answer would turn on the specific policy wording and on whether the claim is understood to arise from the exercise of board authority, employment responsibilities, or both. The merits theory and the coverage defense are mirror images — the same characterization that makes the fiduciary claim viable may make the coverage question hard — but Zync frames a genuine coverage contest, not a foreordained result.

Allocation. The litigation involves an individual director, multiple investor entities, and mixed fiduciary, tort, and contract claims — some potentially covered, some potentially not, spread across two towers with different retentions, attachment points, and exclusions. That is a recipe for allocation disputes over defense costs, separate counsel, priority of payments, and the erosion of shared limits.

VII. The Strategic-Investor Dimension

Traditional venture investors principally want financial returns. Strategic and corporate venture investors may also want technology access, commercial terms, competitive intelligence, and optionality over an emerging capability. None of that is improper, but it raises the probability that the investor’s interests will diverge from the company’s — and Zync alleges divergence in a stark form: an investor extracting a competitor’s draft contract while allegedly blocking the financing the company needed to serve that competitor. The complaint also alleges that Porsche’s conduct reflected a broader strategy of using minority investments and governance rights to keep emerging technology away from competing manufacturers; that allegation remains unproven. These tensions may become especially acute in artificial intelligence and other technology markets where a strategic investor can also be a supplier, customer, prospective acquirer, and competitor.

VIII. Questions Zync Puts on the Table

Zync is one pleading-stage decision on unusually hard facts, and the record may look different after discovery. But the questions it raises do not depend on the outcome.

For venture organizations and portfolio companies

The decision illustrates how internal shorthand and instruction-based workflows become the evidentiary record: whether communications reflect consultation or direction; whether the business rationale for withholding consent was recorded when the decision was made; and where information obtained through board service travels once it leaves the boardroom. For portfolio companies, the decision draws attention to how approval rights are structured — stockholder-level consents and director-level approvals sit in very different doctrinal postures — and to the value of indemnification agreements and D&O placement completed before distress arrives.

For brokers and coverage counsel

The fact pattern reads like a working checklist: insured-versus-insured wording and its carve-backs, outside-directorship coverage and its scheduling requirements, double-excess mechanics over an insolvent underlying company, capacity and dual-capacity exclusions, Side A adequacy, and priority-of-payments provisions.

For underwriters

Zync suggests a diligence distinction between financial and strategic investors — and a reason to ask how a fund’s designees actually receive, document, and act on instructions from the organizations that appointed them.

IX. Conclusion: The Board Seat Is Not the Fund’s Seat

Venture firms obtain board seats to protect their investments. Zync recounts allegations — so far only allegations — of a board seat operating as the instrument through which an investment destroyed the company. If those allegations are ultimately credited, the exposure will not have stopped with the director. It will have traveled to the investor that gave the instructions, through contracts that routed a veto through a fiduciary, and into two insurance programs whose responses may depend on incompatible characterizations of a single individual’s role. The board seat may be insured. The instructions behind the board seat may not be. For venture investors, the lesson is that a designee must exercise independent fiduciary judgment. For the D&O insurance market, the harder question is whether coverage follows the director when the complaint alleges that the independence disappeared.

Ben Dubin is the Managing Member of VC Expert Services, LLC, providing expert witness and litigation consulting in venture capital and private-company disputes. He is the author of The Architect’s Guide to Venture Capital: The Forensics of Venture Capital Disputes (Silicon Arbitrage Press), a six-volume book series on venture capital governance and dispute resolution. More at vcexpertservices.com.

The author is not engaged in the Zync litigation and has no relationship with any party to it. This article describes allegations and pleading-stage rulings only; it is not legal advice and expresses no opinion on the merits of the claims or on the existence or scope of any insurance coverage.

^[1] Zync, Inc. v. Porsche Investments Management, S.A., C.A. No. 2025-0284-JTL (Del. Ch. May 29, 2026).

^[2] Weinberger v. UOP, Inc., 457 A.2d 701, 710 (Del. 1983).

^[3] See Shocking Technologies, Inc. v. Michael, 2012 WL 4482838 (Del. Ch. Oct. 1, 2012).

^[4] Zync, Inc. v. Porsche Investments Management, S.A., 2026 WL 1470324 (Del. Ch. May 26, 2026) (dismissing the individual Porsche executive for lack of personal jurisdiction).

^[5] In re Mindbody, Inc. Stockholder Litigation, 332 A.3d 349 (Del. 2024); In re Columbia Pipeline Group, Inc. Merger Litigation, 342 A.3d 324 (Del. 2025).

^[6] Calumet Capital Partners LLC v. Victory Park Capital Advisors, LLC, 353 A.3d 88 (Del. Ch. 2026).

^[7] Del. Code Ann. tit. 8, § 122(18).

^[8] Del. Code Ann. tit. 8, § 145.

^[9] See, e.g., D&O Insurance: Coverage Precluded for Individual Acting in Dual Capacities, The D&O Diary (July 2024).

In its July 29, 2026, report on first half securities class action lawsuit filings (here), Cornerstone Research explained the increased levels of 1H26 securities suit filings as being due in significant part to “a surge in litigation involving artificial intelligence-related claims .” In the latest example of this type of AI-related securities litigation, as well as an example of the kinds of allegations that can lead to these kinds of suits, late last week a plaintiff shareholder sued Israeli cloud web development platform company Wix.com, alleging the company had overstated its AI-related capabilities and prospects, while understating its AI-related costs. A copy of the July 24, 2026 complaint can be found here.

Background

Wix offers services that allow users to create and customize professional websites. At relevant times, the company allegedly tried to remain competitive by providing its customers with AI-powered offerings. In January 2026, the company launched Wix Harmony, intended to be the Company’s flagship AI site builder, allowing users to generate designs, contents, and layouts automatically.

The complaint alleges that during the class period, the company touted its purported leadership in AI-powered web development, which it claimed set it apart from competitors.  The complaint alleges that in reality the company’s costs were “accelerating at an alarming rate as it struggled to maintain its relevance in the market, particularly as competing AI technologies and services were increasingly outpacing the capabilities of Wix’s own products.”

On May 13, 2026, the company reported disappointing financial results for the 1Q26, including earnings and revenue below consensus expectations, as well as a decline in operating margins attributed to softness in its professional developer business.

In an earnings call the same day, the company acknowledged that Wix’s professional developer customers were using competing AI tools, as well as that its Harmony platform had “holes” and “missing capabilities,” and that there had been delays in delivering product updates, as a result of which the company had fallen behind “the workflow and needs of” professional developers. According to the complaint, the company’s shares fell about 27% on this news.

The Lawsuit

On July 24, 2026, a plaintiff shareholder filed a securities class action lawsuit in the Northern District of Illinois against Wix and certain of its directors and officers. The complaint purports to be filed on behalf of a class of investors who purchased the company’s securities between February 19, 2025, and May 12, 2026.

The complaint alleges that during the class period, the defendants made false or misleading statements or failed to disclose that: “(i) Wix had overstated the competitiveness and performance of its AI product offerings relative to those offered by other companies; (ii) Wix had understated the costs associated with developing and promoting its AI product offerings; (iii) accordingly, Defendants overstated the commercial and financial benefits of Wix’s product offerings; 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 class.

Discussion

As noted above, the volume of AI-related securities suit filings has been an important factor in the number of securities class action lawsuit filings this year. There have been several different kinds of AI-related lawsuits filed; this lawsuit clearly represents an example of a so-called “AI washing” securities suit, in which plaintiffs allege that the defendant company misrepresented its AI-related capabilities and opportunities. The plaintiff specifically alleges that “overstated the competitiveness and performance of its AI product offerings” and “overstated the commercial and financial benefits” of its AI product offerings.

In its discussion of the AI-related securities lawsuit trends, the Cornerstone Research report about 1H26 securities suit filings breaks down the AI-related lawsuits by defendant type. The defendant categories to which the report refers include AI development companies; AI usage companies; AI Infrastructure/Hardware companies; Data Centers; Autonomous Vehicles; and other.

I think this categorization provides a useful framework to think about and to analyze the AI-related securities litigation.

The defendant in this lawsuit appears to fit in the AI development company category, as it is creating and trying to market AI tools for professional developers to use in website design and creation. (The company’s customers apparently would seem to qualify as AI users.)

According to the Cornerstone Research report, there previously had been 6 AI-related securities suit filings involving AI developers in 2026, making this new lawsuit the 7^th. According to the Cornerstone Research report’s analysis, AI developers are the most frequent target in the AI-related securities suits filed so far this year.

In addition to the complaint’s AI-washing type allegations, this new complaint also has allegations concerning the defendant company’s AI-related spend – specifically, that the company underreported the costs associated with developing and promoting its AI product offerings.

As companies face pressures to incur costs in order to keep up in the AI arms race, AI spend-related allegations are an increasingly important part of AI-related securities suit allegations. Readers may recall that AI spend related allegations were in fact a key component of the AI-related lawsuit filed last year against Oracle and in the lawsuit more recently filed against Microsoft. As AI associated cost become increasingly astronomical, it seems probable that AI spend-related allegations will become an increasingly important part AI-related securities suit complaints.

The Cornerstone Research report says that as of this year’s mid-point, there had been a total of 15 AI-related securities suits filed so far in 2026, compared to 16 for the full year 2025, putting the 2026 AI-related securities suit filings on a pace to almost double the number of 2025 filings. (Cornerstone Research’s filing numbers differ slightly from our own tallies, but the figures in both data sets are directionally consistent.) Under the Cornerstone Research tally, this new lawsuit filing brings the year’s count of AI-related filings to 16, with more undoubtedly to come. It seems clear that by year end the AI-related litigation will prove to have been an important factor in the total number of securities class action lawsuits filed this year.

There is one final note I want to add of significance for D&O insurance underwriters, and that is to observe that while these AI suits involve AI-related allegations, they otherwise are entirely conventional securities class action lawsuits. Other than the AI allegations, there is really nothing new about these suits.

For that reason, in thinking about what the underwriting implications of these AI suits, D&O underwriters don’t have to come up with an entirely new underwriting approach. Rather, they need to think about how to adapt existing tools to this new category of suits. The type-of-defendant framework Cornerstone Research proposed is one good starting point. Another useful starting point is the type of AI-related allegation, starting, for example, with AI washing type allegations. In future posts, we intend to further explore the relevance of these kinds of analytic frameworks in developing an underwriting approach to AI-related D&O claims risk.