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Reading time: 5 minutes

Your Friday Five

Out of the 200+ insurance, legal, and market-risk articles we read this week, here’s the three best we think your board needs to be briefed on next Monday.

• Delaware just gave insurers a regulatory gift - privilege protection that could transform compliance nationwide
• D&O liability faces a storm of new litigation: 27 AI lawsuits in 18 months, DOJ hunting "illegal DEI," and tariff violations triggering False Claims Act suits
• MGAs control $114 billion in premium and they're using technology to fill gaps traditional carriers won't touch

Delaware's Regulatory Safe Harbor Sets National Template

Summary

Delaware made a calculated move to protect its insurance market dominance.

House Bill 74, signed into law this year, ensures insurers can share confidential information with regulators without losing privilege protections; even when documents aren't redacted. The statute explicitly protects both insurers and policyholders: "No waiver of any applicable privilege or claim of confidentiality in the documents, materials, or information occurs as a result of disclosure to the Commissioner."

The timing matters. As regulatory examinations intensify nationwide, Delaware created a model that compliance officers and legal counsel have been seeking for years. Industry observers expect California, New York, and Illinois to consider similar legislation by year-end.

​(source: insurancebusinessmag)​

So what?

Multi-state compliance just got more complicated - and more strategic.

Delaware's framework gives financial institutions leverage in states without explicit privilege protection. When your next regulatory examination comes up in Ohio or Texas, you can point to Delaware's approach as the standard. Smart compliance teams are already drafting protocols that reference Delaware's protections when negotiating examination procedures in other jurisdictions.

For boards overseeing operations in multiple states, this creates an opportunity. Push your legal team to seek similar protections in every state where you operate. The precedent exists. Use it.

Artificial Intelligence, Diversity Equity and Inclusion, Tariffs

Summary

(When we think about the Church of Insurance, we’ve worshiped at the altar of the D&O Diary since we were baby brokers over 20 years ago. Mr. LaCroix, if you’re reading this week, hat tip to you sir! Massive appreciation for keeping us all on point in the D&O marketplace over so many years.)
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Five distinct liability streams converged into one massive D&O exposure.

Start with AI litigation: Twenty-seven securities class actions filed since early 2024, with twelve hitting in just the first six months of 2025. These aren't hypothetical risks. Reddit got sued in June when shareholders claimed the company buried how Google's AI search would destroy their ad revenue. The complaint survived initial scrutiny, and similar suits keep coming.

Meanwhile, the Department of Justice turned DEI programs into False Claims Act targets. Brett Shumate's June memo placed DEI enforcement at the top of the Civil Division's priorities. Not the Civil Rights Division - the Civil Division, which handles fraud cases.

Target's securities suit over its Pride Month campaign survived dismissal in December 2024, with the federal court finding the company's risk disclosures "could be materially misleading."

Then add tariff enforcement. The administration filed its first FCA case for tariff underpayment against a South Carolina furniture company in July. Sullivan & Cromwell's analysis warns the administration appears "poised to aggressively use both civil and criminal enforcement tools" for tariff compliance.
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​Other Pressures on D&O beyond AI, DEI, and Tariffs

• ESG Backlash: As Federal ESG requirements retreat, state and EU rules keep climate risk and sustainability reporting in the litigation spotlight.
• State of Incorporation Shifts: The Delaware “DExit” movement signals a possible migration to Texas/Nevada, with long-term implications for director/officer liability and litigation rates.
• Cybersecurity: Regulatory authorities continue to pursue cyber failures under the False Claims Act and securities laws - failure to disclose or protect against breaches remains a top D&O exposure.

​(source: dandodiary)​

The LION Lens

What happened - Securities plaintiffs filed 27 AI-related suits across 18 months while DOJ simultaneously weaponizes the False Claims Act for DEI and tariff enforcement (source).

Why it matters - Traditional D&O policies increasingly exclude these exact exposures, leaving boards personally vulnerable.

Practical implications - Audit your coverage immediately for AI exclusions, review historical DEI programs for FCA exposure, and strengthen tariff compliance documentation.

So what?

Your D&O policy may not cover what you think it covers anymore.

Carriers exclude AI risks while demanding you integrate AI to remain competitive. Past DEI initiatives - even those discontinued - create current enforcement exposure under the FCA's six-year statute of limitations. Every import transaction becomes a potential federal case if documentation falls short.

Financial institutions must navigate a paradox: adopt AI and risk securities litigation when something goes wrong, or fall behind competitors and face shareholder suits for failing to innovate. The same dynamic applies to DEI and global supply chains.

The window for negotiating manuscript protections closes as carriers finalize their 2025 risk appetite. By Q4, most carriers will have locked their exclusions for the year.

The LION POV

Three moves protect against this convergence:

• Map your actual exposures against your current coverage - most institutions discover gaps they didn't know existed, particularly around definitions that could be problematic in AI related claims
• Layer specialized excess coverage for emerging risks, using different carriers for AI, employment practices, and regulatory investigation coverage to avoid concentration
• Document everything with litigation in mind - AI governance decisions, DEI program changes, tariff calculations all need defensible paper trails

Markets are showing more flexibility on manuscript amendments right now, but only for buyers who understand exactly what protections they need.

MGAs: The $114 Billion Alternative When Traditional Markets Retreat

Summary

For the first time, nonaffiliated MGAs write more premium than carrier-owned MGAs; $43 billion versus $42 billion.

Total MGA premiums hit $114.1 billion, growing 16% while the broader P&C market expanded just 8%. Fronting companies provide the infrastructure: Accelerant, Sutton, and Transverse each surpassed $1 billion in premium, offering rated paper for programs traditional carriers won't touch.

Technology drives the transformation. Conning's survey found 93% of MGAs actively explore new markets, using AI and analytics to price risks in days rather than weeks. They're writing cyber coverage with AI components, professional liability for emerging technologies, and specialized D&O for companies traditional markets avoid.

​(source: conning)​

So what?

Alternative capacity becomes essential capacity when traditional markets retreat.

MGAs fill the gaps that appear when standard carriers add exclusions. Need AI coverage that actually covers AI use? MGAs write it. Want DEI-related employment practices coverage? They have appetite. Seeking manuscript terms for unique exposures? That's their specialty.

But MGA partnerships require different due diligence.

Financial stability varies widely. Claims handling capabilities differ dramatically. Some excel at underwriting but struggle with complex claims. Others have deep expertise in narrow niches but lack broader market knowledge.

The institutions that build MGA relationships now - before they desperately need them - will have options when traditional markets harden further. Those that wait will scramble for whatever capacity remains.

Did you miss our Wednesday Intelligence Brief?
“the elephant in the (court) room - an unfiltered conversation about nuclear verdicts”

While the insurance industry spends millions on sophisticated defense strategies to combat nuclear verdicts, one mid-western mutual CFO shared with me how his company's 50-year verdict-free streak had nothing to do with better lawyers or claims protocols.

This unfiltered conversation reveals the industry's best-kept secret: nuclear verdicts aren't decided in courtrooms but in coffee shops, church parking lots, and Little League fields long before anyone gets called for jury duty. We champion regional and mutual insurers' greatest untapped advantage - their authentic community presence as "us" rather than "them" - and encourage them to double down on being genuinely local instead of copying the National carriers' playbooks. Rather than allocating millions to defend future bad faith claims, we suggest doubling down on their community involvement might be a better strategy and a powerful verdict immunity that no sophisticated defense strategy could match.

Part Two will explore why nationals need million-dollar defense strategies while your favorite local mutual company already has something better - when you're genuinely part of the community fabric, a verdict against you feels like a verdict against the town itself.

​>>>Click Here to Read Part 1​

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Stay Covered,

Natasha & Mark

Co-Founders and Managing Partners

LION Specialty

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