Update on trends in securities litigation and potential implications for directors and officers

In the world of public companies, the threat of litigation looms large. Directors and officers must navigate a complex landscape fraught with risks such as an organized plaintiffs’ bar, economic uncertainty, and emerging technologies to safeguard the interests of their investors and the company as a whole. Despite the challenges, 2025 saw a decrease in securities claims compared to the previous year, as highlighted by the National Economic Research Associates (NERA) in their annual report on securities litigation trends.

The report revealed a rise in dismissal rates, a decrease in aggregate settlements, and overall positive indicators that could bode well for companies and their directors and officers liability (D&O) insurers. Companies are urged to remain vigilant to evolving trends in securities class action litigation to better manage risk areas and understand what insurance underwriters might focus on during future policy renewals.

The favorable indicators from 2025 include an 11% drop in securities claims, a higher dismissal rate than the 10-year average, and a decrease in the average settlement amount. Despite these positive trends, the median settlement increased, and the share of settlements ranging from $21 million to $50 million saw a notable rise. Nevertheless, with more claims resolved than filed in 2025 and a significant drop in total settlements compared to the previous year, insurers may view 2025 as a more favorable year in terms of risks.

Artificial intelligence (AI) litigation remains a persistent challenge, with 17 AI-related securities class action suits filed in 2025, representing 8% of all federal filings. Executives must articulate how their organizations are adapting to AI technology and addressing related risks amidst increasing competition and potential fraudulent activities. Companies facing AI-related litigation often contend with allegations of misleading investors or failing to disclose competitors’ AI strategies that could impact financial performance.

Missed earnings guidance and performance challenges also contribute to securities claims, with negative earnings results or missed guidance resulting in stock drops being a significant factor in 43% of cases. D&O insurance coverage does not guarantee business performance but protects against disclosure risks. Transparency and clear communication with investors are crucial during renewal meetings to reassure underwriters and mitigate the likelihood of claims.

Moreover, macroeconomic risks such as inflation, immigration, and tariffs can also lead to litigation if companies fail to disclose potential impacts. Demonstrating transparency and proactive risk management to D&O underwriters can help mitigate surprises and enhance credibility. Overall, companies should focus on enhancing risk profiles by emphasizing governance practices, compliance measures, and robust risk frameworks to navigate the evolving landscape of securities litigation.