Pre-Negotiated D&O Terms: A Sharper Edge as Claims Severity Climbs

NOVEMBER 3, 2026

Directors and officers (D&O) liability claims are becoming more expensive, even as fewer are being filed. That makes the fine print in D&O coverage increasingly important. Standard policies may protect corporate leaders and their organizations from lawsuits alleging mismanagement, breach of duty, or wrongful decisions, but "off-the-shelf" policies are built for the average risk — not necessarily yours.

A Softer Market on the Surface

USI's 2026 Commercial P&C Market Outlook Mid-Year Addendum projected generally flat to modest D&O rate increases through the second half of 2026. Public company rates range from flat to +7.5%, while private company and not-for-profit rates range from -2.5% to +7.5%. For many buyers, those projections may feel like welcome relief after several volatile years.

But rate moderation does not mean insurers are easing their underwriting standards. Carriers remain selective about capacity, and that shows up in policy terms long before it shows up in premium. A flat renewal is not a green light to accept boilerplate coverage.

Severity Is the Real Story

Securities class action filings declined from 226 in 2024 to 207 in 2025.¹ Yet alleged damages to shareholders, measured as disclosure dollar loss, reached a record level. In short: fewer lawsuits, but the ones that are filed are asking for more money.

USI's Mid-Year Addendum points to a growing concern: severe losses may reach higher layers of the insurance tower than carriers previously expected. As a result, some underwriters are pulling back from underpriced excess coverage. Before renewal, organizations should revisit their tower structure and attachment points rather than wait until a claim exposes a gap.

New Underwriting Pressure Points

Three developments are reshaping how carriers evaluate D&O risk this year:

• Artificial intelligence oversight. Underwriters are asking about AI's financial and operational impact — including potential workforce reductions — and about board oversight of related disclosures.
• Tariff and regulatory exposure. Carriers expect boards to show documented oversight of tariff impacts and regulatory enforcement activity, with more scrutiny of disclosure controls.
• Social inflation. Rising litigation costs and larger jury awards continue to increase defense and settlement costs across executive and professional liability lines.

Where Standard Policies Fall Short

Most D&O policies contain a broad "personal conduct" exclusion, letting an insurer deny coverage for any claim arising from deliberate fraud or a violation of law by an insured. The exclusion exists for good reason, but standard wording can cut off coverage the moment an allegation is made — long before any wrongdoing is proven. Executives who are later cleared may still owe their own defense costs in the interim, just when legal bills are mounting and reputations are on the line.

Case Study: A Narrower Exclusion Preserves Coverage

A USI client employed an executive who was accused of fraud and unjust enrichment. After the court entered summary judgment against the executive, most standard policies could have cut off coverage from that point forward under the personal conduct exclusion.

Because this client was covered under USI's exclusive ExecuSafe program, which narrows that exclusion, the insurer continued advancing defense costs while the client pursued an appeal. The carrier ultimately reimbursed $175,000 in defense costs after the final ruling found that no fraud had occurred — a cost that would otherwise have landed on the company or the individual insureds.

What This Means for Your Balance Sheet

The stakes extend beyond any single claim. Shareholder and breach-of-fiduciary-duty claims accounted for 20% of claims and 23% of amounts paid, averaging $4.3 million per claim. Both the average and median payments were second only to the amounts paid for antitrust claims.² Standard policies often cap dedicated Side A protection — coverage for directors’ and officers' personal losses when the company cannot indemnify them — at $250,000 to $500,000. Pre-negotiated enhancements can add up to $1 million in dedicated Side A limits at no additional premium, strengthening protection for the personal assets of directors and officers when the company cannot indemnify them.

Steps for Executives and Boards

Before renewal, organizations should take these four steps to identify potential coverage gaps:

• Review D&O terms against personal conduct, insured-vs-insured, and pollution exclusions to spot where coverage could lapse before liability is proven.
• Confirm that Side A limits reflect rising defense and settlement costs, especially when the organization’s ability to indemnify is uncertain.
• Document board oversight of AI adoption, tariff exposure, and regulatory compliance, since underwriters now ask for this evidence directly.
• Evaluate excess layer structure and attachment points given insurers' growing caution about underpriced excess capacity.

The Bottom Line

A calmer rate environment can create a false sense of security. The organizations best positioned will use this window to strengthen policy language and coverage structure, not just accept a modest renewal number. Pre-negotiated terms are one of the most direct ways to do that.