Changes in Delaware Corporate Law: A D&O Liability and Insurance Perspective

On March 25, 2025, Delaware adopted Senate Bill 21 (SB 21) into law, modifying provisions of the state’s corporate laws to lessen stockholders’ rights relative to claims involving controlling stockholders, particularly as they relate to purportedly conflicted transactions. For some time, states such as Nevada and Texas have attempted to lure corporations by developing even friendlier corporate laws than Delaware’s. SB 21 is, in large part, Delaware’s attempt to mitigate the risk of companies re-incorporating elsewhere.

What SB 21 does

SB 21 would amend select provisions of Sections 144 and 220 of the Delaware General Corporation Law. Below are highlights of SB 21’s changes. The text of the law is accessible at Legislation Document.

• The modifications define what parties constitute “controlling stockholders,” clarifying the term is limited to individuals who own at least half of a company’s shares or a third of shares plus a managerial role.
• Under SB 21, a controlling stockholder transaction may be entitled to safe harbor protections if approved or recommended by a committee consisting of a majority of disinterested directors or approved or ratified by a majority of votes cast by disinterested stockholders. A going private transaction may also be entitled to the same protections.
• SB 21 also establish criteria for determining the independence of directors and stockholders and provide that controlling stockholders and control groups, in their respective capacities, may not be held liable for monetary damages for purported breaches of the duty of care.
• The amendments also narrow the scope of “books and records” that shareholders can obtain under Delaware law to include core materials, effectively eliminating rights to obtain emails, texts, and other documents.
• The state senate simultaneously introduced Senate Concurrent Resolution No. 17, calling for a directive to certain authorities/practitioners to develop reforms to address the size and frequency of plaintiffs’ attorney fee awards for shareholder litigation.

Amendments introduced by opponents to the bill, notably one that sought to provide an opt-in mechanism, failed in the final vote. The amendment would have provided that a corporation could opt into the provisions of SB 21 by a shareholder vote.

How might this affect D&O liability

Delaware corporations may see an ease to liabilities in certain cases filed in the state. This would impact shareholder cases in Delaware that come in the form of direct actions or derivative suits for breaches of duty, especially those involving controlling shareholders and allegedly conflicted transactions. Cases related to going private transactions might also be easier to defend, too, which would be helpful to affected companies as, currently, going private suits can be costly to resolve due to alleged conflicts. Plaintiffs’ attorneys’ fees awards may ultimately become subject to increasing challenge, and books and records demands may become less burdensome for companies. Perhaps all of this translates into less liability, less D&O insurance “loss.”

Having said that, SB 21 does nothing to alter the laws of states other than Delaware. If a company is incorporated in any other state, it would not be impacted by the law. Importantly, SB 21 does nothing to alter liability under the federal securities laws (the Securities Act of 1933 or the Securities Exchange Act of 1934) or other federal laws.

The most significant D&O claim exposure to public companies is the federal securities class action (SCA), whose average settlement in 2024 was $43 million (Source: NERA, Recent Trends in Securities Class Action Litigation: 2024 Full-Year Review). The median settlement has been $14 million over the past three years (Id.). Settlement data involving Delaware-specific matters is less accessible publicly, but our experience is that resolution of those cases is not nearly as severe on average as resolution of federal SCAs.

It is true there have been several derivative lawsuits settle for very large amounts in recent years. The three largest derivative settlements from the past three years are Tesla ($735 million), FirstEnergy ($180 million), and Insys ($175 million). Tesla was an excessive compensation case, FirstEnergy was a case involving criminal bribery, and Insys stemmed from opioid-related allegations that ultimately resulted in executives being convicted of racketeering charges. SB 21 would not have absolved or mitigated exposures in those cases (or many of the other high value derivative cases), notably the FirstEnergy case, which involved an Ohio corporation that would not have benefitted from changes in Delaware regardless.

Note: The Tesla settlement referenced above was not the high profile derivative case involving Elon Musk’s $55 billion proposed pay package. Critically, however, SB 21 likely would have affected the pay package case had it been brought after the bill’s adoption. That case was filed against Musk as a controlling stockholder with a 21% interest in the company. With SB 21 now clarifying that a “controlling stockholder” can only be someone who owns at least half of a company’s shares or a third of shares plus a managerial role, Musk would not qualify.

Note also: plaintiffs have had some measurable success recently surviving motions to dismiss with factually detailed complaints, often derived from books and records demands. With those demands limited in scope under SB 21, this potentially could reduce the number of successfully pled derivative suits – a positive outcome for D&O insureds and their insurers.

How might this affect D&O liability insurance coverage?

SB 21 impacts select liabilities for companies and their directors and officers, limiting certain shareholder rights. It would not appear, however, to affect coverage under almost any traditionally worded D&O policy. The policy, with customary terms and limitations, broadly covers “Claims” against “Insureds” for “Loss” alleging “Wrongful Acts” (disclaimer: policies can and do vary substantially, so this is a general statement). We do not see SB 21 as substantively modifying the character of claims or the scope of relief beyond what is already addressed by the coverage. Nevertheless, there are areas in the policy worth addressing. They include, but are not limited to, the following:

• Despite the possibility that controlling shareholders may have new arguments to defend themselves, companies should attempt to negotiate wording to cover insured persons in a controlling shareholder capacity. Addition of this wording should be considered regardless of changes brought on by SB 21.
• Derivative litigation has the potential to trigger Side A coverage – that portion of the policy covering non-indemnified losses. While SB 21 appears to ease derivative risks to a degree, it’s a reminder to companies and their directors and officers continuously to scrutinize the scope and breadth of their Side A coverage. Side A policies are designed to provide broader coverage than traditional “ABC” policies, and care should be taken to maximize coverage breadth using the company’s broker’s coverage and product specialists.
• Many D&O policies include sublimited coverage for statutory Books and Records demands. Although SB 21 limits the scope of information available to shareholders under these demands, the costs to address the demands are still potentially substantial. We do not believe SB 21 should justify a reduction in available sublimits.

Finally, with SB 21’s limitations in liability, there is sensible justification for Delaware corporations to present themselves to insurance markets at renewal as more favorable risks. The same may be true of companies re-incorporating in Nevada or Texas (or other states), which would have similar or, in some instances, even better liability limitations.