USA Law and Practice Contributed by: Christina Culver, Rhonda Thompson and L. Michael Brooks, Thompson, Coe, Cousins & Irons, LLP
ment, fraud detection, and claim handling, which has become a point of contention in extra-contractual litigation. When third-party AI resources are utilised, some of the same agency liability issues may arise with respect to the acts or omissions of the AI agent employed by the insurer. 4.9 Financial Lines Coverage Trends Financial lines insurance coverage disputes in the United States, including D&O liability, professional liability/errors and omissions (E&O), and financial institutions insurance, are being shaped by a range of evolving risks. The courts are actively developing the law on bump-up exclusions in M&A-related share- holder litigation, the scope of insured-versus-insured exclusions as applied to regulatory agencies and bankruptcy trustees, the enforceability of regulatory exclusions when government receivers sue failed- institution directors, and the allocation of D&O policy proceeds in insolvency. Recent landmark decisions from the Delaware Supreme Court and the Fourth Cir- cuit provide critical new guidance that is reshaping coverage positions across all of these lines. Among the most actively litigated issues in D&O cov- erage is the scope of bump-up exclusions, which bar coverage for any settlement amount representing an effective increase in the deal consideration paid in an acquisition. The courts have developed a two-step framework to assess these exclusions: (i) whether the underlying claim alleges that the consideration paid was inadequate; and (ii) whether the settlement amount actually represents the amount by which con- sideration was effectively increased (see Illinois Nat ’ l Ins . Co . v Harman Int ’ l Indus ., Inc ., No 47, 2025, 2026 WL 204209 (Del. 27 January 2026); and Towers Wat- son & Co . v Nat ’ l Union Fire Ins . Co . of Pittsburgh, PA, 138 F.4th 786 (4th Circuit 2025)). Regulatory investigations and pre-suit inquiries are also a focal point for financial lines coverage disputes. Public company D&O policies typically cover defence costs for SEC investigations involving directors and officers. However, many policies do not extend to informal inquiries, making the definition of claim and the trigger for coverage pivotal in an enforcement environment where investigations can persist for years before any formal proceeding. The courts have rec-
ognised that, depending on policy language, a civil investigative demand can qualify as a claim under E&O policies, and timing, pending-and-prior litigation exclusions, and the characterisation of False Claims Act settlements (restitution or disgorgement versus compensatory payments) continue to drive outcomes under claims-made D&O and E&O programmes. Additionally, D&O exposures are increasing related to AI and cyber-risks, with insurers and insureds negotiating policy terms to address potential AI or cyber-exclusions, sub-limits, and routing of claims to cyber-specific coverage; companies are correspond- ingly increasing purchase of cyber-coverage. Expec- tations have increased for directors to monitor cyber- security, while insurers deploy AI in underwriting, risk management, fraud detection, and claims handling. At the same time, federal-level deregulation efforts and a pivot away from DEI efforts may reduce D&O and EPL exposures. 4.10 Casualty Coverage Trends Lawsuits involving homeowners’ insurance coverage disputes unrelated to hurricanes have surged recently, including claims arising from western wildfires, hail, and other storm-related damage. Liability insurance coverage litigation has continued its upward trend since 2022, driven, in part, by insur- ers making more assertive coverage denial decisions (which some commentators link to increased infla- tionary pressure on insurers), the emergence of novel liability scenarios related to technology and environ- ment risks, including cybersecurity, ESG-related liabil- ity, and AI risks. Although pandemic-related claims have waned, busi- ness-interruption claims continue to rise, driven par- tially by climate-related disruptions, with a majority of 2025 BI filings related to hail, storms, floods, and other weather events. In general-liability coverage, environmental claims involving hazardous substances such as PFAS are a major source of coverage disputes as courts continue to grapple with the “absolute” pollution exclusions that limit liability for contamination, toxic torts, and claims, while still addressing legacy policy forms that
300 I NSURANCE L I T IGATI O N 2026
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