Securities class actions and the D&O market

A securities class action is a lawsuit by shareholders who say a public company's statements about its business were false or misleading, and that the stock fell when the truth came out. The suit names the company and often its executives, and it is the claim public company D&O insurance is priced around. Filings are cyclical, a small share of listed companies is sued in any year, and the cost lands on the shared limit that also protects individual directors.

How a securities class action works

Most federal suits allege a violation of Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5: a material misstatement or omission, made with intent or recklessness, that investors relied on and that caused a loss. A second family comes from the Securities Act of 1933, usually Section 11 claims over a registration statement in an IPO or offering. Those claims do not require proof of intent, which is why companies that have just gone public watch them closely.

The steps run on a fairly predictable timetable:

1. A stock drop and a press release. Plaintiffs' firms announce investigations within hours of a bad earnings report, a short-seller report or a regulatory action.
2. The complaint and lead plaintiff. Under the Private Securities Litigation Reform Act (see 15 U.S.C. § 78u-4), notice of the suit must be published within 20 days, class members have 60 days to ask to be lead plaintiff, and the court presumptively picks the movant with the largest financial interest.
3. Motion to dismiss. Discovery and other proceedings are stayed while the motion is pending, unless the court finds particular discovery is needed. Dismissal is the most common early outcome, so defense spending to this point is the most predictable part of the bill.
4. Discovery, class certification and mediation if the case survives. Cases that survive generally settle; trials are rare.
5. Court approval of the settlement, often more than a year after filing.

Securities suits are often followed by shareholder derivative actions against the board over the same facts, and by SEC or DOJ inquiries. Each can trigger the D&O policy. Which claim arrives first and how related claims are grouped decides which policy period responds, so claims-made timing matters.

What the filing data says

Cornerstone Research's 2025 Year in Review reports:

• 207 securities class action filings in 2025, down from 226 in 2024, with 114 in the first half and 93 in the second.
• A 3.5% chance of a core filing against a U.S. exchange-listed company in 2025, down from 3.9% in 2024, and 5.8% for S&P 500 companies.
• A record Disclosure Dollar Loss of $694 billion, Cornerstone's measure of the change in a defendant's market capitalization across the end of the class period. Mega filings made up 81% of the total.
• Trend categories: 16 AI-related filings, 10 SPAC-related and 9 cryptocurrency-related, plus 23 federal and state 1933 Act filings of which only 4 were in state court.
• Outcomes: of core federal filings from 1997 to 2025, 46% settled, 45% were dismissed and only 0.4% (22 filings) reached trial. For the 2015 to 2022 filing years, 54% were dismissed and 39% settled.

On settlements, Cornerstone's separate report puts the 2025 median settlement at $17.3 million, a near three-decade high, even as the number of settlements fell. A low filing rate does not mean low severity: a case that survives dismissal is expensive relative to a typical retention.

How the D&O policy responds

A public company program normally has three parts working together (see D&O Sides A, B and C explained):

• Side A pays individuals directly when the company cannot or will not indemnify them.
• Side B reimburses the company when it indemnifies its directors and officers.
• Side C covers the company itself, and for public companies this is generally limited to securities claims. That limit is the reason entity coverage is the most expensive and most scrutinized part of the program.

Several features of the form are decisive in a securities class action:

• Defense costs inside the limit. Legal fees through a motion to dismiss and discovery erode the same limit that pays the settlement (defense costs inside vs outside policy limits: why it matters).
• A securities claim retention. The entity retention for securities claims is typically the largest in the program and varies by company size, while Side A usually has none.
• The definition of loss. Policies commonly exclude fines, penalties and matters uninsurable by law, and carriers argue that disgorgement or restitution is not insurable loss. Many forms address Section 11 and 12 damages by express wording; ask what yours says.
• The conduct exclusion. Intentional fraud or illegal personal profit excludes coverage, but usually only after a final adjudication, and it is severable by person so that one executive's conduct does not defeat everyone's coverage.
• Allocation. When the company and individuals both face claims, the policy sets how defense costs and settlements are split between covered and uncovered parties.
• Insured vs insured. A bankruptcy trustee or a derivative plaintiff can run into this clause; see The insured vs insured exclusion in D&O policies.

A hypothetical: how the tower erodes

Say a mid-cap public company has $50 million of total D&O limits arranged as a primary layer and four excess layers, with a $1.5 million retention on securities claims. After a stock drop, shareholders sue. Defense counsel for the company and six executives spends $9 million through a denied motion to dismiss and class discovery. The case settles for $17 million, near the Cornerstone median.

The retention absorbs the first $1.5 million. The program pays $9 million + $17 million − $1.5 million = $24.5 million. About half the tower is gone. If a derivative suit and an SEC inquiry follow the same facts, they draw on the remaining $25.5 million. Hence the importance of Side A-only excess layers, which only the individuals can use. This is an illustration with invented figures, not a market-typical program.

The pricing market

Public company D&O pricing fell for roughly four years. Risk & Insurance reported on August 10, 2026 that Aon's Q2 2026 data showed the average primary price for renewals with the same limit and deductible up 0.6% year over year, the first increase after 16 straight quarters of declines. Of those renewals, 47% were flat, 28% rose and 25% fell. Aon's D&O Pricing Index nonetheless slipped to 1.04 from 1.06 a year earlier, because of changes in the mix of limits and renewing clients. Aon called the market "firming."

Marsh's Global Insurance Market Index for Q2 2026 found U.S. financial and professional lines rates up 1% after a 2% decrease in Q1. Neither set of figures is a quote: what a particular company pays depends on its market cap, industry, recent IPO or offering activity, stock volatility, litigation history, limits and retention. The pattern is a soft market flattening out, not a hard turn.

What to do before the renewal

1. Review the tower. Does the total limit make sense against your market capitalization and the settlement and defense numbers above? Is there a Side A DIC layer?
2. Read the securities claim definition, the entity retention and the allocation clause.
3. Check the disclosure controls that underwriters will ask about: how forward-looking statements, cyber incidents (The SEC's cyber incident disclosure rules) and AI claims are reviewed. Statements about AI capabilities have become a source of filings, so see AI liability insurance: how insurers are treating artificial intelligence risk.
4. Plan for change-in-control and IPO events, which change the exposure and the form.
5. Ask counsel and your broker about notice. A subpoena, an SEC request for documents or a demand letter can be a claim or a circumstance that should be noticed in the current period.

Private companies seldom face this exposure in the same form; see D&O insurance for private companies and startups.

Key takeaways

• A securities class action turns on a stock drop and an alleged misstatement; in 2025 Cornerstone counted 207 filings and a 3.5% chance of a core filing against a U.S. exchange-listed company.
• Public company D&O gives the entity Side C coverage mainly for securities claims, which share a limit with the individuals' protection.
• Defense costs usually erode the limit, so a case that survives a motion to dismiss can consume a large part of a program before settlement.
• Aon reported the first increase in average public company primary D&O pricing in 16 quarters in Q2 2026; the market is flattening, not hardening.
• Side A-only excess layers, the definition of loss and the allocation clause deserve attention at every renewal.