As we kick off the new year, dealmaking is strong. According to J.P. Morgan, U.S. M&A activity was robust in the first half of 2025, and conditions were right for accelerated activity in the second half of the year. For corporate leaders, it’s an exciting time—but without the right D&O policy terms, that momentum can come with unexpected exposure.
Opportunities and Risks in the D&O Market
The current D&O market is a tale of two cities.
On the one hand, rates are falling. According to CIAB, excess capacity and increased insurer profitability are paving the way for a softening of the market. D&O rates were down by 2.1% on average in the third quarter of 2025, following a decrease of 2.5% in the second quarter.
On the other hand, new risks threaten a new wave of litigation. In addition to increasing M&A activity, we’re also seeing a resurgence of SPACs and the rise of Digital Asset Treasury Companies. Combined with volatility in the cryptocurrency market and unknown risks associated with the rapid adoption of AI, we’re entering risky territory. Recent AI-related lawsuits, along with a securities class action lawsuit against DeFi Technologies alleging misrepresentations regarding its arbitrage strategy, could be a sign of more litigation to come.
Put it all together, and the takeaway is clear: Now is the perfect time to review your D&O coverage.
Directors and Officers Don’t Always Have They Coverage They Assume
D&O policy terms are dense. Many corporate leaders assume they have coverage in place without actually reading the fine print, but policy terms can vary significantly. During a high-stakes and complicated transaction like a merger or acquisition, what you don’t know absolutely can hurt you. You may end up with insufficient coverage for claims, or worse, no coverage at all.
To understand why this can happen, consider the following:
· Change in control provisions. D&O policies typically contain change in control provisions that require the insured to notify the carrier of a change in control and restrict or terminate coverage for new acts. The provisions can be triggered in a number of scenarios, including a merger or acquisition.
· Claims-made coverage. D&O policies are written on a claims-made basis, meaning claims need to be made while coverage is in force. If a claim is made after coverage has lapsed, there won’t be coverage, even if the alleged wrongful act took place while the policy was active.
If a company loses D&O coverage because a merger triggered the change in control provision, and then a lawsuit is filed for acts that occurred in the lead-up to the merger, there may not be coverage. It’s possible to secure adequate coverage with tail coverage that extends the claims reporting period, but corporate leaders need to pay careful attention to the specific terms of their policy.
Consider the following two scenarios:
Company A has a D&O policy. Then Company A merges with Company B. This triggers the D&O policy’s change in control provisions, requiring new D&O underwriting. However, this happens in the middle of the policy term, and Company A overlooks the change in control provision and fails to notify the insurer. As a result, Company A ends up without coverage for claims.
Company A has a D&O policy. Then Company A is acquired by Company B, and Company A’s leadership steps down. Company A no longer exists, so its D&O policy is not kept active. Tail coverage can provide protection for Company A’s former leadership team in the event of a claim, but it’s important to have sufficient coverage in place. If the tail policy has lower limits and more restricted coverage, the executives may not have the protection they’re counting on.
· Do you have coverage for alleged wrongful acts that took place before the merger or acquisition?
· Do you have coverage for alleged wrongful acts that span the old corporate entity and the new one?
· Do all directors and officers have coverage?
· Does the tail provide adequate limits, coverage terms, and reporting period length?
Don’t make assumptions. If you’re headed toward a deal, or currently in the midst of one, work with a broker who knows the ins and outs of D&O coverage. Even if you’re not looking at a merger or acquisition, new risks and falling rates make this an excellent time to take another look at your coverage. Contact NSI Insurance Group for a review of your D&O policy.
