Directors and officers (D&O) liability insurance has entered a new pricing cycle, one tied directly to the rise in bonus recoupment filings. In 2025, the Securities and Exchange Commission reported a 40% increase in clawback actions against corporate executives, and D&O insurers have responded with rate increases averaging 15-25% for public companies. This article examines how clawback filings are reshaping D&O underwriting, coverage terms, and risk management strategies.

Clawback Filings Rise as D&O Insurers Raise Rates

According to SEC enforcement data, recoupment actions under Rule 10D-1 and other provisions reached a record high in 2025. The rule, implemented in 2023, requires listed companies to adopt policies for recovering incentive-based compensation from executives in the event of accounting restatements. Insurers have taken note: D&O premium increases are now closely correlated with the frequency of clawback filings.

MarketScout's Q1 2026 report showed D&O rates rising 18% year-over-year, while claim frequency grew only 8%. The disparity suggests that severity, not frequency, is driving pricing. Insurers point to clawback litigation as an emerging severity factor, with average settlements exceeding $10 million. Boards face expanded liability exposures as SEC rules tighten oversight requirements.

Rate hikes vary by industry. Technology and healthcare companies, which have seen the most clawback actions, face the steepest increases—sometimes above 30%. Financial services firms, historically heavy D&O buyers, are seeing more moderate hikes of 10-15% due to already robust compliance programs. Underwriters now review clawback policy language for loopholes, demanding stronger recoupment provisions as a condition of coverage.

How Bonus Clawbacks Become D&O Claims

A clawback typically follows a financial restatement or a finding of misconduct. When a company recovers compensation from an executive, the executive may seek indemnification from the board or the company's D&O policy. Directors who approved the compensation or failed to oversee financial reporting can face personal liability for oversight failures.

Standard D&O policies contain exclusions for intentional fraud, but clawback-related claims often fall into a gray area. If a director is alleged to have negligently failed to detect red flags, the policy may respond. However, insurers are increasingly adding specific clawback exclusions or sub-limits to limit exposure. Some policies now exclude any claim arising from a compensation recoupment, regardless of negligence.

Underwriters also demand that companies have robust clawback policies in place before binding coverage. A policy that lacks clear triggers or enforcement mechanisms can result in higher premiums or outright declination. Boards should ensure their clawback provisions comply with SEC rules and are consistently applied.

SEC Rule 10D-1 Reshapes Coverage Terms

SEC Rule 10D-1, adopted in 2023, mandates that listed companies adopt and disclose clawback policies. The rule requires recovery of incentive-based compensation from current and former executives if a financial restatement occurs, regardless of fault. This strict-liability approach has surprised many boards, as it imposes recoupment even for unintentional errors.

Exchange listing standards now enforce clawback recovery, and companies must file their policies with the SEC. Insurers use these filings to gauge a company's risk profile. A policy with narrow triggers or weak enforcement language can signal poor governance, leading to higher D&O premiums. Conversely, a robust clawback policy may be viewed favorably, as it demonstrates proactive risk management.

Underwriters are also adjusting policy exclusions and sub-limits. Some carriers now include a separate sub-limit for clawback-related claims, often in the range of $1-5 million, with higher retentions. Others exclude coverage entirely for any compensation recouped under a company's clawback policy. Boards should negotiate these terms carefully, as standard language may leave gaps.

Rate Hikes Outpace Claim Frequency Growth

The divergence between rate increases and claim frequency growth is striking. While D&O rates rose 18% in Q1 2026, claim frequency increased only 8%, according to MarketScout. This suggests that insurers are pricing for future severity, not current losses. Clawback litigation is a key driver, as even a single large settlement can exceed the premiums collected from hundreds of policies.

Average D&O settlement amounts have risen steadily, with some estimates placing them above $10 million for public company claims. Severity is driven by defense costs, which can run into millions before a case is resolved. Insurers also factor in the potential for shareholder derivative suits that often accompany clawback actions.

Some industry observers argue that rate hikes are overdone, noting that clawback filings have not yet resulted in a wave of large payouts. But insurers counter that the risk is real and that the SEC's increased enforcement activity signals more to come. The result is a hard market for D&O insurance, particularly for companies with weak clawback compliance.

Counter-Argument: Are Rate Hikes Justified?

Not all market participants agree that the current rate increases are warranted. Some risk managers contend that the correlation between clawback filings and D&O losses is still unproven. They point out that many clawback actions are settled without litigation, and that the SEC's recoupment efforts often result in modest recoveries relative to the compensation at stake. For example, in 2024, the SEC recovered approximately $200 million in clawback-related settlements, a fraction of the aggregate D&O premium pool. Critics argue that insurers are overreacting to a limited data set, and that the 15-25% rate hikes may be a temporary correction rather than a long-term trend.

On the other hand, underwriters defend their pricing by citing the potential for catastrophic losses. A single large clawback claim, combined with shareholder derivative suits and defense costs, could exceed $50 million. The SEC's increasing enforcement budget and staffing suggest that clawback actions will become more frequent and aggressive. Moreover, the strict-liability nature of Rule 10D-1 means that even companies with strong compliance programs can face recoupment demands, broadening the exposure base. This uncertainty justifies higher premiums, according to insurers.

The debate highlights a trade-off: companies with clean records may be subsidizing the risks of their peers in a pooled market. Risk managers should therefore seek to differentiate their firms through detailed underwriting presentations that demonstrate robust clawback policies and a history of no claims. Some carriers offer bespoke pricing for clients with superior governance, rewarding them with lower rate increases.

Risk Managers Rethink Coverage Structures

In response to rising premiums and tightening terms, risk managers are rethinking their D&O coverage structures. Side A coverage, which protects directors when the company cannot indemnify them, has gained popularity. Side A policies typically have fewer exclusions and are less affected by clawback-related restrictions.

Clawback-specific endorsements are now available from some carriers. These endorsements provide limited coverage for defense costs or settlements arising from clawback claims, often with a separate sub-limit. However, they are expensive and may require the company to adopt specific clawback policy language as a condition of coverage.

Retention levels have increased, with many companies opting for higher self-insured retentions to offset premium hikes. Multi-year policies are also being used to lock in rates amid volatility. A three-year policy can provide stability, but it requires careful negotiation of renewal terms and clawback exclusions.

For companies with strong compliance records, the hard market presents an opportunity to differentiate themselves. Underwriters reward companies that can demonstrate robust clawback policies, timely restatement procedures, and a history of no claims. Risk managers should work with brokers to present a compelling risk profile.

Case Study: Insulet Verdict Overturned but Clawback Threat Lingers

In May 2026, the U.S. Court of Appeals for the Federal Circuit overturned a $59 million trade secret verdict that medical device maker Insulet had won against Korean rival EOFlow. The court found insufficient evidence of misappropriation. However, the case had already triggered a shareholder demand for clawback of executive compensation, alleging that Insulet's board failed to oversee the litigation properly.

Insulet's D&O carrier denied coverage for the clawback claim, citing a conduct exclusion that applied if the board knowingly allowed misconduct. The board argued that the underlying verdict had been vacated, so there was no misconduct. The carrier disagreed, and coverage litigation followed. The case illustrates that clawback risk persists even after a litigation win, and that policy language can be ambiguous.

The lesson for boards is that clawback demands can arise from any legal proceeding, not just financial restatements. Directors should ensure their D&O policies have clear coverage for clawback-related claims, and that exclusions for conduct are narrowly drawn. The Insulet case also highlights the importance of documenting board oversight of litigation and compensation decisions.

Practical Steps for Boards and Brokers

Boards should start by reviewing their clawback policy compliance with SEC rules. The policy must cover all incentive-based compensation and apply to current and former executives. It should be filed with the SEC and disclosed in proxy statements. Any gaps in compliance can lead to higher D&O premiums or coverage denials.

When negotiating D&O renewal terms, boards should work with brokers to secure clawback coverage sub-limits that are adequate for their risk profile. Some carriers offer separate clawback endorsements that cover defense costs and settlements, but these may come with higher retentions. Boards should also negotiate the scope of conduct exclusions to ensure that negligence is covered.

Documenting board oversight of clawback triggers is critical. Minutes of board meetings should reflect discussions of restatements, compensation decisions, and clawback enforcement. Underwriters review these records when assessing risk. A well-documented oversight process can lead to better terms.

Finally, boards should benchmark their D&O renewal terms against industry peers. A commercial general liability claim payouts track reinsurance audit schedules in a similar way, and understanding market norms helps in negotiations. Brokers can provide comparative data on rates, retentions, and coverage terms. Group health premiums skim fourteen percent for reinsurance recovery shows a different dynamic, but the principle of benchmarking applies.

Additional Examples: Clawback Scenarios Across Industries

To further illustrate the breadth of clawback exposure, consider the case of a large technology firm that restated earnings due to revenue recognition errors. The company's clawback policy triggered recovery of bonuses from the CFO and several division heads. The CFO then filed a D&O claim, arguing that the restatement was due to an honest mistake and that the board had failed to provide adequate training on revenue recognition rules. The insurer denied coverage, citing a policy exclusion for claims arising from compensation recoupment. The ensuing coverage litigation lasted over a year and cost both parties significant legal fees.

In another example, a healthcare company faced a clawback demand after a government investigation revealed billing irregularities. The CEO voluntarily returned a portion of his bonus, but shareholders sued the board for failing to supervise compliance. The D&O carrier initially reserved rights, then agreed to a settlement after the board demonstrated that it had relied on external auditors. This case underscores the importance of documenting reliance on experts.

A third scenario involves a manufacturing company that inadvertently misstated inventory values. The clawback policy was triggered, but the company's D&O policy had a sub-limit of $2 million for clawback-related claims. Defense costs quickly ate into that limit, leaving little for settlement. The board had to negotiate a supplemental coverage from a specialty insurer at a high premium. This highlights the need for adequate sub-limits.

Trade-Offs in Coverage Design

When structuring D&O coverage, boards face several trade-offs. One key decision is whether to accept a clawback-specific sub-limit or negotiate for broader coverage. A sub-limit can lower the overall premium, but it may leave the company exposed if a large claim exceeds the sub-limit. Conversely, broader coverage with no sub-limit will be more expensive but provides greater protection.

Another trade-off involves retention levels. Higher retentions reduce premiums but increase the company's self-insured risk. For companies with strong cash reserves, a higher retention may be acceptable. For startups or firms with limited liquidity, a lower retention is safer but comes at a higher cost.

Multi-year policies offer rate stability but lock in terms that may become outdated as regulations evolve. A three-year policy signed in 2025 might not account for future SEC rule changes or court rulings on clawback enforceability. Boards should weigh the benefit of predictable premiums against the risk of being stuck with unfavorable terms.

As clawback filings continue to rise, D&O insurance will remain a focal point for boards and risk managers. Staying informed and proactive is the best defense against unexpected coverage gaps.

This article is for informational purposes only and does not constitute professional advice. Readers should consult their insurance broker or legal counsel for guidance specific to their situation.