Why Organizations Need a Robust Directors and Officers Risk Program

Why Organizations Need a Robust Directors and Officers Risk Program
April 15, 2025 7 mins

Why Organizations Need a Robust Directors and Officers Risk Program

Why Organizations Need a Robust Directors and Officers Risk Program

A variety of growing risks, including shareholder derivative actions, an evolving regulatory environment and bankruptcy filings, are why public and private organizations must protect their corporate directors and officers.

Key Takeaways
  1. Leaders of public and private/nonprofit organizations face an evolving risk landscape, which requires strong risk management and robust D&O insurance programs.
  2. Shareholder derivative actions, the regulatory environment and corporate bankruptcy are a few of the significant risk areas to monitor for all organizations.
  3. In this environment, D&O coverage that includes Side A protection is critical.

Board members and other leaders of public companies and private/nonprofit organizations alike face significant and growing liability risks — from shareholder derivative actions and regulatory enforcement by increasingly active regulators to personal liability arising from bankruptcy-related claims.

The significant risk environment that public and private/nonprofit directors and officers operate in underscores the need for leaders and their respective organizations to implement strong risk management strategies. This includes the procurement of robust directors and officers (D&O) insurance programs with Side A D&O personal asset protection to safeguard board members and officers in the event of non-indemnifiable loss.

Some of the top D&O risk concerns organizations should have on their radar include:

Growth of Shareholder Derivative Actions

Board members and officers of any organization are fiduciaries of the company and required to act in its best interest. Although company directors — and more recently, officers — may be exculpated from monetary liability to their respective companies for certain misconduct, such D&O exculpation is generally forbidden with respect to serious misconduct. Board members and officers breaching their fiduciary duties of loyalty to the company, acting in bad faith or knowingly violating the law would fall under this category.

Subject to various procedural requirements, when organizational directors and officers engage in misconduct and harm their companies, the law generally permits shareholders to step into the company’s shoes and sue the directors and officers on the company’s behalf. This is called a shareholder derivative action.

“In recent years, the plaintiffs’ bar has had success in shareholder derivative actions, which has led to growth of monetary amounts of settlements,” says Nick Reider, deputy D&O product leader, West Region, United States. “This is reflected in the many lawsuits that have survived early motions to dismiss.”

Notably, because the companies in derivative lawsuits are the alleged victims and the settlement payments are thus made to them, most states’ laws forbid companies from indemnifying derivative lawsuit settlements.

This is one of the key reasons why Side A D&O insurance is so important. Without it, directors and officers settling derivative claims would have to reach into their own pockets. Maintaining dedicated excess Side A insurance that can “drop down” to pay upon differences in conditions, even when other underlying insurance fails to pay, has become a critical tool for public and private companies. It protects their board members and officers from dipping into their own personal assets to fund non-indemnifiable derivative settlements.

Changing Regulatory Environment

Companies, as well as their directors and officers, face significant regulatory risks. Underscoring this is that the Division of Enforcement of the U.S. Securities and Exchange Commission (SEC) recovered more financial remedies in 2024 than any other year in the SEC’s history.

Moreover, regulators have eagerly demonstrated their commitment to policing misconduct arising from novel technologies. Artificial intelligence (AI) is just one example. The U.S. Department of Justice (DOJ) has prioritized AI, as evidenced from the DOJ’s recently updated Evaluation of Corporate Compliance Programs to scrutinize companies’ risk assessments of the AI technologies they use.

Similarly, the Federal Trade Commission (FTC) recently announced five new enforcement actions involving AI-related deceptive and unfair conduct, part of the FTC’s new AI enforcement initiative, Operation AI Comply.

How D&O Insurance Can Help

For public companies, D&O insurance can be a valuable tool in mitigating the impact of a regulatory investigation or enforcement action. Public company D&O forms usually include some amount of coverage for costs incurred by D&Os in responding to investigations, including coverage for the company reimbursing D&Os, coverage for defense costs in an enforcement action, and potentially even coverage for certain fines and penalties.

Although public D&O forms (unlike private company D&O forms) usually limit the company’s coverage for loss incurred in the company’s own right to only securities claim-related loss, more insurers are becoming receptive to extending coverage for loss incurred in securities-related investigations.

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Expanding Definition of "Insured Person"

A recent cyber-related enforcement action involving corporate cyber officers revealed that insurers are generally receptive to adding specific roles to the definition of “Insured Person.” In a public company D&O form and in stark contrast to private company D&O forms, this definition is somewhat circumscribed and does not include all company employees for all claims.

Private company D&O policies provide broad coverage for the organization. Claims can be brought by shareholders, creditors, customers, vendors and regulators. The coverage extends more broadly to directors, officers and employees, and may also include indemnified independent contractors as insured persons. Although private companies and their insured persons may not have quite the same exposure to the SEC as their public counterparts, they nonetheless face regulatory risks.

Regulatory matters, which include proceedings brought by or on behalf of a government entity such as the DOJ, SEC, State Attorneys General or Qui Tam actions, are on the rise amid a heightened regulatory environment. These claims, while not frequent, are often the most severe and costly.

AIG’s Claims Intelligence Series, North America Financial Lines: Private Company D&O Liability, categorized claims into five categories based upon the largest driver of each claim. Of these:

  • Regulatory claims account for 20 percent of claim count and 15 percent of total paid loss.
  • Antitrust claims, typically brought by regulatory bodies such as the DOJ or FTC, account for 13 percent of claim count. However, the total percentage of paid loss is 25 percent, indicative of the severity of these matters.1

The exposure for antitrust claims is not limited to large private companies. In fact, there have been numerous antitrust suits brought to the not-for-profit space over the past few years. “Antitrust claims are typically brought against the organization and not the insured persons, and some private company D&O policies contain organization antitrust exclusions,” says Catherine Padalino, a private and nonprofit practice leader in the United States.

Insurers are carefully evaluating the extension of antitrust coverage. In some sectors like higher education, antitrust coverage for the organization is very limited. In other sectors, the coverage is more readily available, but higher retentions and/or sublimits may apply.

As private companies evaluate their D&O programs, careful evaluation of antitrust limits and coverage will be key. There is opportunity to build higher limits and appropriately craft antitrust coverage to remove limitations relating to tortious interference within antitrust exclusions, if applicable.

Growth of Bankruptcy Filings Stresses Need for Side A

Inflation and other economic challenges continue to pressure public and private company balance sheets. For example, the number of bankruptcy filings in 2025 shows an upward trajectory compared to 2024, with an average of 10,288 weekly filings compared to 9,687 in 2024. Through Week 14 2025, the nation has already recorded 144,034 bankruptcy filings.2

Much like the prevalence of derivative lawsuits discussed previously, bankruptcy risk underscores the importance of dedicated Side A insurance. Simply put, an insolvent company in bankruptcy is unable to indemnify its directors and officers, and they must rely on Side A coverage to respond should directors and officers be sued.

Aon’s Thought Leaders
  • Catherine Padalino
    Private and Nonprofit Practice Leader, United States
  • Nick Reider
    Deputy D&O Product Leader, West Region, United States

1 North America Financial Lines: Private Company D&O Liability Claims, AIG
2 Bankruptcy Data & Statistics, Bankruptcy Watch

General Disclaimer

This document is not intended to address any specific situation or to provide legal, regulatory, financial, or other advice. While care has been taken in the production of this document, Aon does not warrant, represent or guarantee the accuracy, adequacy, completeness or fitness for any purpose of the document or any part of it and can accept no liability for any loss incurred in any way by any person who may rely on it. Any recipient shall be responsible for the use to which it puts this document. This document has been compiled using information available to us up to its date of publication and is subject to any qualifications made in the document.

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