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Q2 2025 FINPRO Management Liability: Need to Know

Explore Q2 2025 trends in management liability, D&O risks, fiduciary duties, and emerging issues like cryptocurrency in 401(k) plans.

07/08/2025 · 8 minute read

Every quarter, our management liability team shares noteworthy trends and emerging issues to help US-based companies make decisions to manage their risks. In this issue, we look ahead to the directors and officers (D&O) liability and fiduciary liability risks that organizations are expected to face in 2025.

Our Q2 2025 issue focuses on:

  • A recent derivative suit settlement of US$500 million that highlights the growing risks of D&O litigation stemming from antitrust allegations and serves as a critical reminder that other events, beyond securities, can trigger shareholder litigation.
  • Courts may have varying interpretations for bump-up exclusions, underscoring the complexities surrounding coverage in merger and acquisition-related claims and the importance for careful reviews of insurance policy language.
  • The rescinding of guidance regarding cryptocurrency investment options in 401(k) plans offers more flexibility for plan sponsors, but may also lead to increased litigation over the prudence of crypto investments.
  • A recent excessive fee class action that proceeded to a jury trial and a US$33 million award, which may deter future defendants from opting for trial.
  • Prohibited transactions continue to be a significant concern for fiduciaries, with a recent Supreme Court decision potentially leading to an increase in litigation and higher defense costs.

Q2 2025 Management Liability update

D&O Liability

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Fiduciary Liability

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D&O Liability

Largest derivative settlement of 2025 (so far)

A US$500 million settlement reached recently in a derivative suit against a major technology company ranks among the largest derivative lawsuit settlements to date, second only to a notable US$735 million settlement involving another large company. 

The case dates back to 2021, when shareholders filed two derivative complaints against the technology company’s board of directors, alleging that their management practices led to alleged anticompetitive behavior across several business operations. This conduct allegedly exposed the company to antitrust investigations and enforcement actions by regulators.

As part of the settlement, the company has committed to allocating US$500 million for compliance reforms over the next decade. These reforms include:

  • Establishing a dedicated Board Risk and Compliance Committee focused on risk and regulatory oversight.
  • Implementing a more robust internal compliance structure, featuring a senior vice president-level committee and an overhaul of company-wide compliance policies.
  • Adopting new policies aimed at preserving certain communications, thereby enhancing compliance monitoring and enforcement.

Notably, unlike many derivative settlements where directors or officers may be personally liable, the company agreed to fund the US$500 million settlement.

Key risk mitigation actions

This case exemplifies an event-driven claim, where a non-securities matter — in this instance, antitrust enforcement — triggered shareholder derivative litigation. It serves as a reminder that D&O litigation is not confined to shareholder securities issues; almost any significant event can lead to shareholder litigation. It is also important to note that:

  • In certain shareholder derivative settlements, executives may face personal liability. As a result, it is crucial for companies like yours to secure comprehensive D&O insurance to protect against personal exposure. By putting a robust D&O program in place, companies can better mitigate the risks associated with potential litigation and protect their leadership from personal financial repercussions.
  • Given the increasing severity of settlements and the rising costs of litigation, it is critical to carry out careful reviews of D&O insurance limits. This review should incorporate peer benchmarking and analytics that help estimate potential claim costs.
  • Consider establishing a board committee dedicated to risk and compliance. Proactively addressing these issues can help better position you to navigate the complexities of D&O litigation in an evolving regulatory and legal landscape.

Understanding the bump-up exclusion 

A bump-up exclusion is a provision in D&O insurance policies that can come into play during claims arising from acquisitions or mergers. This exclusion is an exception to the definition of “loss” in D&O policies, that could exclude coverage for funding an increase in an allegedly too low purchase price. 

A recent ruling by the US Court of Appeals for the Fourth Circuit highlighted the implications of this exclusion in a case involving the merger of two brokerage firms.

The case revolves around shareholder lawsuits against a company involved in a merger, alleging, among other issues, that the deal consideration was inadequate. After several years of litigation, the parties reached a US$90 million settlement. While the insurers covered the defense costs associated with the lawsuits, they refused to pay the settlement, citing the bump-up exclusion. 

Both the federal district court in Virginia as well as the Fourth Circuit barred coverage for the settlements.

This decision is in contrast to a Delaware court’s recent conclusion on a different case that ruled that the bump-up exclusion did not bar coverage for a suit alleging inadequate deal price.

3 considerations to minimize bump-up exclusion risks

These two cases highlight the importance of taking into account a number of issues related to bump-up exclusions, including:

  • Impact of governing law: The applicable law governing the interpretation of a D&O policy can affect the scope of coverage, as courts interpreting the same language may arrive at differing conclusions.
  • Policy review: It is crucial to review the wording of the bump-up exclusion in your D&O policy and work with your broker to narrow the scope as much as possible, minimizing potential coverage gaps.
  • Underwriter questions: Given the likelihood of D&O litigation arising from mergers and acquisitions (M&A), D&O underwriters will continue to inquire about potential transactions. If an M&A is imminent, they will seek to understand the rationale and goals behind the transaction.

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Fiduciary

Crypto ... It’s in ... It’s out … It’s in 

In May 2025, the Department of Labor (DOL) rescinded a 2022 guidance — issued under CAR 2022-01 — that expressed concerns about the inclusion of crypto currency investment options in 401(k) plans. 

While the 2022 guidance did not forbid crypto investments, the advice to fiduciaries was to “exercise extreme care” when considering cryptocurrencies as potential investment options. This wording dissuaded most plans from including crypto as an option. 

Now that the 2022 guidance has been rescinded, fiduciaries will need to revert back to an earlier guidance from 2020, which stated that including alternative investments, such as cryptocurrencies, would not violate the Employee Retirement Income Security Act of 1974 (ERISA). The DOL has acknowledged that this new approach is to allow discretion from plan sponsors. 

While flexibility to select investments for plan members has a number of benefits, the lack of guidance could result in more litigation where plaintiffs question the prudence of including cryptocurrency in plans. It is therefore critical for fiduciaries to be cautious when determining what investments to include in their plans and document their decision process. 

It is also important to keep in mind that insurers may be cautious when deciding which plans to provide coverage for, and it is worth noting that in the past some fiduciary insurers have excluded plans that included crypto. This cautious approach by insurers is expected to continue. 

Understanding the potential impact of jury trials in excessive fee claims

While excessive fee claims are relatively common, it is not usual for these to proceed to a trial by jury. Many courts have determined that ERISA lawsuits seeking equitable remedies — such as injunction or restitution — should be presided over by a judge while those seeking monetary damages may have the right to a jury trial under the Seventh Amendment.   

One ERISA class action case that advanced to a jury trial led to a US$38 million award for damages in May 2025. The case, originally filed in 2020, and represented by major plaintiff firm, claimed that a US$2 billion plan asset in a multiple employer plan had paid excessive fees. 

Some underwriters have voiced their preference that more firms would take these claims to trial rather than settle. However, this considerable award may dissuade future defendants from taking their cases to trial. 

We expect fiduciary underwriters to continue to carefully scrutinize insurance applications and ask whether any inquires have been made by large plaintiffs firms. Since these claims continue to make it past motion to dismiss, fiduciary insurance retentions are also expected to remain high as insurers consider the impact of potential high awards. 

Navigating the complexities of prohibited transactions

Prohibited transactions remain a potentially contentious issue for fiduciaries. Section 406(a) of ERISA outlines prohibited transactions, including ones between the plan and a person providing services to the plan — referred to as a “party in interest” — that involve furnishing goods, services, or facilities.

Section 408(a) of ERISA provides exemptions to the prohibited services rules, with the most used one stating that the provision of services was necessary for the operation of a plan and compensation was reasonable.

In our previous newsletter we discussed a pending case where the US Supreme Court was looking to clarify the pleading standards for prohibited transaction and excess fee claims against fiduciaries under ERISA. A lower court had ruled that if a plaintiff alleged prohibited transactions, they must also dispute potential exemptions. 

In a unanimous decision, on April 17, 2025, the Supreme Court ruled that those exemptions are affirmative defenses and not the duty of plaintiffs to explore. The Court recognized this opens many cases to an easier pleading standard and offered lower courts other considerations during the motion to dismiss process. 

Since virtually every plan uses a service provider, there are concerns that this ruling could lead to more cases and fewer dismissals. Some underwriters have also voiced concerns that the decision could result in fewer dismissals and higher defense costs. Considering this development, insurers may continue to push back on defense rates and to try to impose limitations on coverage for prohibited transactions. 

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Our people

Deepak Adappa

Managing Director, FINPRO

  • United States

Ruth Kochenderfer

D&O Product Leader

  • United States

Kate Maybee

Fiduciary Liability Product Leader

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Previous editions

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Newsletter

Q1 2025 FINPRO Management Liability: Need to Know

04/07/2025
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Newsletter

Q4 2024 FINPRO Management Liability: Need to Know

01/07/2025
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Newsletter

Q3 2024 FINPRO Management Liability: Need to Know

11/04/2024
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Newsletter

Q2 2024 FINPRO Management Liability: Need to Know

06/28/2024

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