USA

Written by Scott M. Seaman (Co-Chair of Hinshaw’s Global Insurance Service Practice Group) and  Pedro E. Hernandez (Co-Chair of Hinshaw’s Global Insurance Service Practice Group)

Key developments in 2025

Impact Of Trump 2.0

The most impactful development of 2025 relates to the vast departure of the policies under Trump 2.0 from those of the Biden administration. The impact on claim frequency and severity varies by insurance line, but on balance deregulation is expected to result in an overall decrease in enforcement actions by federal agencies. The One, Big, Beautiful Bill – which permanently increases the maximum deduction for certain business property, allows full expensing of domestic research and experimentation expenditures, and makes permanent most of the 2017 tax cuts – generally affords more favourable treatment to insurers and other companies than pre-existing law. Tariffs have injected some uncertainty as well as additional revenues, but many of the concerns expressed by some economists have not materialized to the extent feared so far and economic inflation has declined to under 3%. Credit, trade, and political risks historically have not presented significant losses domestically, but in recent years they are seen as presenting greater risks along with social unrest.

Environmental, Social, and Governmental
Considerations/Sustainability (ESG) Is Down But Not Out

There has been a substantial regulatory rollback of ESG from the “all of government” approach of the Biden administration. Trump 2.0 has adopted a responsible “drill baby drill” approach that is more friendly to fossil fuels in an effort to decrease energy costs and increase supplies needed to quench the energy demands of artificial intelligence data centers. Automobile emissions standards are likely to be reduced and the push for electric vehicles will be decelerated under Trump 2.0 and due to practical considerations such as costs and technological limitations. Even before Trump 2.0, the Biden administration failed to push a final, enforceable climate disclosure rule across the finish line. The U.S. Supreme Court limited somewhat the unbridled authority of administrative agencies during the past couple of terms generally and specifically in the areas of ESG and DEI. ESG backlash became a well-developed resistance movement. The Trump administration – through tabling climate disclosure rules, executive orders, regulatory retraction, and budgetary priorities – has taken much of the bite out of ESG at least for now.

Several states led by California have picked up the ESG baton, but in November the U.S. Court of Appeals for the Ninth Circuit granted an injunction staying the enforcement of California law that requires companies to publish climate risk reports in January 2026 identifying their financial risks associated with climate change and their efforts to mitigate these risks. The court did not stay another law, requiring companies to disclose their Scope 1 and Scope 2 greenhouse gas emissions by an unspecified date in 2026. Though California is taking the lead, pro-ESG measures and legislation have been enacted in other states including Colorado, Florida, Illinois, Maine, Maryland, New Hampshire, Oregon, and Utah, demonstrating that Newton’s Third Law of Motion is bipartisan.  Companies must comply with traditional environmental laws and environmental liabilities remain large.

An End To “Illegal” Diversity, Equity, And Inclusion (DEI) 

The Biden administration also applied its “all of government” approach to advance its DEI initiatives throughout the U.S. government and sought to impose DEI on private companies and actors. Trump 2.0 has targeted “illegal DEI.” On inauguration day, President Trump issued Executive Order 14151 “Ending Radical and Wasteful Government DEI Programs and Preferencing.” The next day, Executive Order 14173 was issued “Ending Illegal Discrimination and Restoring Merit-Based Opportunity.” The U.S. Department of Justice (DOJ) issued a final rule removing regulations issued under Title VI of the Civil Rights Act of 1964 that precluded recipients of federal funding from engaging in disparate impact discrimination based on race, colour, or national origin.

Social Inflation Continues To Rage

Social inflation continues largely unabated, with nuclear and thermonuclear verdicts raining down. Tort costs have increased in recent years at an annual increase of 7.1%, more than twice the inflation rate with nuclear verdicts rising by 52%, thermonuclear verdicts increasing 81%, and defence firm rates up over 12% in the last two years. A 2025 behavioural social inflation study by Swiss Re confirms that juror sentiment has shifted decisively toward plaintiffs, adversely impacting insurers and companies. Support for punitive damages appears strong and punishment has improperly bled into compensatory damage awards.

Insurers and corporate policyholders are being outspent substantially by the plaintiffs’ bar, which has averaged about $1.5 billion a year in advertising and has outmessaged the defence side.  Better messaging and addressing damages and counter-anchoring by defendants is essential.  Tort reform legislation in states such as Florida, Georgia, and Louisiana has shown early signs of effectiveness. Third-party litigation funding continues to be a driver of social inflation.

Artificial Intelligence

Regulators in New York, Colorado, California, and other states have expanded oversight, emphasizing fairness, accountability, and transparency in the use of AI. California’s Privacy Protection Agency advanced draft rules requiring cybersecurity audits, risk assessments, and governance standards for automated decision-making systems. At the federal level, a proposed 10-year moratorium on state AI regulation was rejected 99-1 by the U.S. Senate, but President Trump signed an Executive Order directing the Attorney General to establish an AI Litigation Task Force to identify and challenge state AI laws inconsistent with national policy of global dominance over AI and to evaluate existing state AI laws that conflict with national policy.

Although much attention has focused on generative AI, agentic AI (systems capable of operating and developing autonomously and independently with little or no human oversight) presents significant risks when integrated into systems through application programming interfaces. Deepfakes are being adapted to foster identity fraud and to bypass security systems.
AI-washing claims and AI-related securities class action litigation are on the rise.

Insurers are including AI exclusions, sub-limits, and endorsements to control AI-related risks in a variety of policy types and also are providing affirmative AI coverages.

Cyber and Cybersecurity

Underlying cyber claim frequency remained stable while severity dropped by 50% year-over-year, reflecting improved incident response, widespread adoption of multi-factor authentication, and the increased use of real-time monitoring tools. A 2025 Cyber Claims Report highlighted that business email compromise and funds transfer fraud accounted for 60% of cyber claims, with ransomware continuing to represent the most costly and disruptive attack type.

The U.S. Securities and Exchange Commission (SEC) requires registrants to report material cyber incidents within four business days and to disclose governance practices annually. Most states have breach disclosure laws. Enforcement actions expanded, targeting failures in board-level cyber risk oversight. There has also been an increase in shareholder lawsuits over delayed or incomplete disclosures. Congress has temporarily extended the landmark Cybersecurity Information Sharing Act of 2015 through the end of January 2026. The future of the law, which provides a critical underpinning for information sharing and collaboration across government and industry, remains in doubt.

In 2025, the number of coverage disputes under cyber-specific policies has increased as courts continue to grapple with “silent cyber” claims under traditional liability, property, and crime/fraud policies.

Privacy Claims

In 2025, state-level activity surged with over 800 consumer privacy bills introduced and new laws enacted in Delaware, Iowa, Nebraska, New Hampshire, New Jersey, Tennessee, Minnesota, and Maryland. At the federal level, the Trump administration has reduced oversight and enforcement by the Federal Trade Commission (FTC) and the Consumer Financial Protection Bureau. In Illinois, insurers have prevailed in several appellate rulings holding “violation of law” exclusions bar coverage under cyber and general liability policies for biometric privacy clams.  There was a wave of consumer privacy cases filed under various enacted state laws such as the California Invasion of Privacy Act (CIPA) and in New York under the SHIELD Act. These disputes often targeted policyholders for using website tracking tools and collecting personal information.

PFAS Or So-called Forever Chemicals

PFAS cases pending in courts throughout the U.S. have targeted manufacturers, distributors, and even downstream users of PFAS-containing products. As of November 2025, approximately 19,600 cases were pending in a South Carolina federal court, consolidated into a multidistrict litigation (MDL) proceeding regarding exposure to firefighting foams. Beyond the MDL cases, states and municipalities have filed lawsuits against chemical manufacturers, seeking compensation for the costs of water treatment, environmental remediation, and public health monitoring. At the state level, over 350 PFAS-related bills were introduced across 39 states, with 17 new regulations adopted in nine states by mid-year and some states banning PFAS in part or in whole.

There have been numerous coverage decisions. Court rulings on pollution exclusions in the context of PFAS claims, like rulings in the context of other environmental claims, have been mixed. More insurers are adding PFAS-specific exclusions to their policies.

COVID-19 Business Interruption Litigation 

The COVID-19 business interruption litigation is slowly winding to a close. Approximately 2,400 COVID-19 business interruption coverage cases were filed in the U.S. since the pandemic with no new cases currently being filed. Insurers have achieved overwhelming success in the litigation, prevailing in most motions to dismiss in state and federal trial courts across the country, before every United States Court of Appeal, in most intermediate state appellate court decisions, and before every state supreme court to address the issue, except in Vermont and North Carolina. Insurers prevailed on the grounds that the claims do not involve “direct physical loss or damage” to property as required by the language contained in most U.S. first-party policies and based upon the application of virus and other exclusions.

Drugs, Guns, And Insurrections

Concerns continue about public nuisance claims becoming a super tort. The trend of coverage decisions favouring insurers in the context of opioids continued with coverage for thousands of claims brought by government subdivisions, hospitals, and benefit plans ruled not covered under general liability policies on the grounds that they seek economic loss, rather than “bodily injury” or “property damage” and as not constituting an “occurrence.” The U.S. Court of Appeals for the Second Circuit affirmed a lower court’s ruling that insurers had no duty to defend or indemnify a firearms retailer in “ghost gun” cases on the grounds that the claims did arise from an “occurrence.” In another case, the Second Circuit determined that a New York federal court did not err in finding that Venezuelan President Nicolás Maduro’s actions against the American-recognized government of Juan Guaidó constituted an “insurrection” within the meaning of a marine cargo reinsurance policy as the Maduro regime’s actions were violent and constituted an uprising to overthrow the recognized government. 

D&O and Securities

SEC enforcement actions reached their lowest level in ten years overall, though insider trading and market manipulation enforcement activities increased. The SEC has focused greater scrutiny on foreign companies listed on U.S. stock exchanges. SEC Chair Paul Atkins has indicated that the agency is prepared to move forward with President Trump’s proposal for changing the mandatory periodic reporting requirements for public companies from quarterly to bi-annually. Efforts to avoid securities class action litigation by adopting bylaws requiring securities law claims to be submitted to arbitration are gaining traction.  DExits, the name coined for the corporate movement away from Delaware, have continued the exodus from the state that has been the leading corporate home for U.S. companies. DExists have resulted from the perception that Delaware courts have been less supportive in limiting corporate liability and more inclined to challenge corporate board decisions coupled with efforts by states such as Texas and Nevada to encourage companies to incorporate in their states. To stem the tide of corporate departures, the Delaware legislature enacted numerous changes to the Delaware General Corporation Law. This legislation is subject to pending constitutional challenges.

Numerous important court decisions impacting D&O have been rendered on a full range of issues in 2025. The U.S. Court of Appeals for the Ninth Circuit recently adopted the “materiality” test for determining when intra-quarter reporting is required in the context of initial public offerings under the Securities Act of 1933, joining the Second Circuit in applying this test. It rejected the “extreme departure” standard applied by the lower court and long followed in the First Circuit.

Like the issue of number of occurrences under occurrence-based policies, the issue of related claims under claims-made D&O insurance policies is subject to varying decisions that sometimes are difficult to reconcile. The different results may be driven by the facts associated with the claims, the language of the policy definitions of “claims” or provisions regarding “related claims,” the test applied by the court in determining whether the claims are related, and whether the insured or insurer are benefited by the determination. Earlier this year, the Delaware Supreme Court adopted the “meaningful linkage” standard in finding claims to be related. Other courts, such as a federal court in Virginia, ruled that two claims were not related, applying the more restrictive “common nexus” test. A federal court in Montana found claims were related because they were based on the same general business practice and course of conduct.

New York’s high court rejected the application of New York law to disputes between stockholders and companies incorporated in foreign countries. The United States Court of Appeals for the Ninth Circuit held that coverage for settlement amounts and defence costs incurred in an underlying employee and client poaching lawsuit was barred by California Insurance Code Section 533, which precludes coverage for losses caused by the wilful act of the insured. The Delaware Supreme Court ruled that payment of defence costs by a non-insured did not count towards the insured’s self-insured retention and that the insured’s payment of the self-insured retention was a condition precedent to the insurer’s obligation to cover losses under the policy. In another action, the Delaware Supreme Court affirmed the dismissal against some D&O insurers based on the Prior Acts Exclusion, but remanded the case for further proceedings on the “no action” clause, finding there were various policy provisions, particularly with respect to the advancement and allocation of defence expenses, that potentially could be relevant to the determination of the meaning and application of the “no action” clause. 

The U.S. Court of Appeals for the Fourth Circuit held that the bump-up exclusion applied to bar coverage for a $90 million settlement of litigation relating to Towers Watson’s 2016 merger with Willis Group Holdings. Meanwhile, Delaware decisions have refused to apply bump-up exclusions to bar coverage.

The adage that “cash is king,” appears to be fading fast in Delaware.  The Delaware Supreme Court affirmed a Delaware Superior Court determination that an insured movie theatre’s settlement payment made in the form of its stock valued at $99.3 million qualified as a covered “Loss” under its D&O policy.  The court found that “Loss” was not limited to cash payments. It emphasized that, under Delaware law, stock is a form of currency that can be used for a variety of corporate purposes, including settling debts. Decisions such as this may cause insurers to revise policies to prevent or limit the forms or methods of payments that satisfy “Loss” or “exhaustion” requirements. Insureds, on the other hand, may seek endorsements to accommodate cryptocurrency or other forms of payments.  

Health Insurance

Health insurance continues to present concerns in terms of scope and costs of coverage, with the Affordable Care Act of 2010 not living up to its name. Premium subsidies were funded during the pandemic but expired at year-end without Congress addressing the issue.  2026 promises to present changes in the health insurance landscape with the political parties sharply divided.

Silica

Silica-related claims and litigation have resurged due to the popularity of engineered stone for kitchen and bath countertops, which contains a higher content of respirable crystalline silica compared to natural stone. Following a $52 million verdict awarded to a stone fabricator by a Los Angeles jury, hundreds of cases were filed in California.  Lower courts have been divided on whether silica exclusions bar coverage at the pleading stage.

Weather-Related Claims

Climate change continued to drive insurance instability in 2025, particularly in California, Florida, Texas, and Louisiana, where extreme weather events such as wildfires, hurricanes, and flooding led to rising premiums and large insurer withdrawals and insolvencies. Between 2018 and 2023, insurers cancelled or non-renewed nearly 2 million policies in these states. In response, California regulators began allowing insurers greater flexibility in setting premiums after multiple insurers announced they would stop or limit writing homeowners policies.

A mild 2025 hurricane season in North America resulted in property insurers processing fewer claims in the third quarter of 2025 compared to the third quarter of 2024.  The industry is on track to have the lowest claim volume in five years due to a decline in catastrophe claims. Wind and hail perils dominated and Texas maintained its position as the state with the highest claim volume. Individual claim costs and replacement costs increased potentially making the third quarter of 2025 one of the most expensive quarters on record despite the drop in claims volume. 

In January 2025, the Palisades Fire and Eaton Fire in Los Angeles destroyed over 16,000 structures and caused industry-wide insured losses of up to an estimated $45 billion.  With respect to claims arising out of wildfire losses, a California appellate court decision ruled that minor infiltration of wildfire debris and smoke into a home that does not alter the property in any lasting or persistent manner and that is easily cleaned, is not considered covered property damage within the meaning of the homeowners policy. A federal court decision likened smoke to asbestos while differentiating smoke from viruses for insurance coverage purposes. The U.S. Court of Appeals for the Eighth Circuit determined that soot damage – like asbestos damage and unlike a virus – is both “directly material, perceptible, or tangible” and “permanent, absent some intervention.”

Tort reform in Florida included steps to address insurer insolvencies and Citizen’s Insurance Company, the state’s insurer of last resort, has retracted in size and has proposed rate cuts for 2026, which may be attributable to the success of tort reform.

Bad Faith and Extra-Contractual Liability

Bad faith claims and extracontractual liability continue to present significant challenges to insurers in the U.S. The use and integration of AI in claims handling presents a burgeoning area for bad faith claims by policyholders. Insurers may also face claims for failing to use AI. Balancing claims handling efficiency and accuracy with the need for individualized claim attention will prove to be important. Accuracy in evaluation and monitoring algorithms will be beneficial to insurers in connection with avoiding bad faith liabilities and with respect to regulatory compliance in the areas of pricing, underwriting, fraud detection, and claims handling.

Tort reform legislation enacted in various states over the past couple of years has provided insurers with opportunities to limit their exposure to bad faith liabilities. In Florida, specious bad faith claims against property insurers have been reduced by requiring an adverse adjudication by a court confirming that the insurer breached the insurance contract followed by a final judgment or decree against the insurer before any extracontractual damages claim may be filed. A bad faith finding is precluded where an insurer tenders the policy limits or the amount demanded within 90 days of receiving notice and supporting evidence. In December 2025, Florida Insurance Commissioner Michael Yaworsky reported that overall litigation is down about 30% since lawmakers approved the property insurance reforms in late 2022 and 2023, though still higher than in other states.

In Louisiana, limits were place on some bad faith claims, a new 60-day “Cure Period Notice” was added for catastrophic loss claims involving immovable property, and “reverse bad faith” provisions impose a requirement on insureds and their representatives to exercise the duty of good faith and fair dealing in submitting coverage claims. Although an independent cause of action is not created, insurers may use this as an affirmative defence that may be considered by a jury when considering whether to impose penalties on the insurer for breaching its duty to the insured.

In 2024, Georgia amended its “Bad Faith Failure-to-Settle” statute, clarifying the structure of time-limited settlement demands: what “material terms” mean, how insurers should respond, and when they can avoid bad faith.  Montana now requires that time-limited settlement demand letters reasonably describe the claim, allows 60 days for acceptance by the insurer, and requires claimants to provide reasonable records and information to insurers. California added a statutory framework for time-limited demands.

Numerous decisions have been rendered on bad faith claims in 2025. For example, the Indiana Supreme Court held that an insurer did not breach the duty of good faith and fair dealing when it rejected a time-limited settlement demand by one claimant and filed an interpleader of policy funds naming all claimants.  The U.S. Court of Appeals for the Fifth Circuit affirmed the dismissal of a bad faith claim where the complaint contained conclusory allegations that the insurer failed to “thoroughly investigate” the property damage and pay the requested amounts without containing specific factual allegations to support the claim. A Pennsylvania court dismissed an action finding an insurer’s litigation conduct can be evidence of bad faith only where “the insurer is intentionally avoiding its obligation under a policy or is undermining the truth-finding process and where the conduct involves the insurer in its capacity as an insurance company, not as a legal adversary.” A California court dismissed a bad faith claim alleging the insurer failed to conduct a reasonable investigation by not contacting any of the insured’s major customers to discuss projected sales when determining the amount of covered business income loss. The court determined the insurer’s reliance on a forensic accounting expert’s opinion provided the insurer with a reasonable basis for its determinations of the amount of loss. The U.S. Court of Appeals for the Ninth Circuit affirmed summary judgment awarded to an insurer on a bad faith claim for failure to settle within policy limits due to the claimants’ failure to provide medical records in response to 10 requests from the insurer. The U.S. Court of Appeals for the Eleventh Circuit affirmed the district court’s order granting summary judgment for an insurer holding the insurer did not act in bad faith in its handling of an auto accident claim with multiple claimants as a matter of Florida law. A two-week delay in reviewing the police report was not bad faith. Further, the insurer was entitled to conduct a reasonable evaluation before making a settlement offer in view of conflicting opinions on liability. By withholding distribution of the policy limits until a global settlement conference, the insurer acted in its policyholder’s best interests by minimizing the magnitude of possible excess judgments against the policyholder.

What to look out for in 2026

International and state regulation will continue to impose compliance burdens on insurers and policyholders in ESG, DEI, and other areas. California’s climate risk disclosure law, enacted in 2025, will take effect in 2026 absent a further injunction, mandating that large companies report climate-related financial risks. Insurers will continue to track third-party funding bills, including one requiring disclosure of litigation funding in federal court cases and another precluding litigation funding by foreign entities that are currently before the House judiciary committee.

Cybersecurity and AI will continue to provide an overriding backdrop for insurers and policyholders. All the claim types discussed above are expected to be subject to additional rulings in 2026, particularly in areas of cyber-specific policies, AI, and PFAS. Emerging claims areas include IT outages, Glyphosate-related claims (Roundup), formaldehyde (chemical hair straighteners), and processed food claims.

A host of new data privacy laws are scheduled to take effect on January 1, 2026, including the Indiana Consumer Data Protection Act, the Kentucky Consumer Data Protection Act, and the Rhode Island Data Transparency and Privacy Protection Act.  The right to cure periods under the existing Delaware and Oregon privacy acts are scheduled to expire on January 1, 2026.  The revised California CCPA regulations become effective January 1, 2026, along with the California Delete Act regulations.