By Nan Murphy, Senior Vice President, Underwriting Manager, Management Liability, Munich Re Specialty – North America

An overarching theme for privately held organizations in 2025 is continuing uncertainty. This uncertainty is present on multiple fronts — economic volatility, domestic and geopolitical shifts influencing international trade, labor market dynamics, and an active litigation environment. All these add up to increased liability exposure for the directors and officers of private organizations and a growing need to address that exposure through Private Management Liability insurance.

Macroeconomic and microeconomic trends can influence private D&O exposure. Supply chain risks and the impact of tariffs and trade policies may strain businesses’ balance sheets and revenue streams. Any private company that faces a broader economic downturn, or even isolated financial trouble, may face additional risk of D&O liability.

Economics factor into D&O liability risk in a chain-of-events fashion. For example, a private business may be forced to take on additional debt to stay afloat during slow periods, while missing earnings or profitability targets may result in management changes or reductions in force. These events and other developments can lead to lawsuits against individual directors and officers, and the entity itself.

Another significant risk factor that stems from economic challenges is bankruptcy. A decision to file for bankruptcy, as well as the restructuring or liquidation of assets, can trigger lawsuits alleging wrongful acts by directors and officers.

Domestic and geopolitical issues also create uncertainty across private industry. In turn, financial uncertainty stemming from government policy can increase an organization’s cost of capital, squeeze profit margins, and constrain trade.

As an example, tariffs and changes to trade agreements may increase the cost of importing and exporting goods, which can trigger financial challenges for private enterprises and ultimately result in litigation.

In addition, private companies must comply with employment and safety regulations. Non-compliance can lead to enforcement actions by regulatory authorities as well as private legal actions against directors and officers.

The vast majority of working Americans are employed by private organizations, which account for more than 80% of the workforce, according to the Bureau of Labor Statistics. And companies with 100 or more employees employ more than 56 million people.²

Because of this, private companies have significant exposure to employment practices claims. They need to be alert to employment disputes and complaints to try to avoid employment claims and lawsuits.

 Current employment issues can include:

• Generational differences – Generational differences in the workplace and labor market challenges can lead to employment practices claims. In many workplaces, four, or sometimes five, generations are present. According to the Society of Human Resources Management (SHRM), the largest segment of the workforce is millennials, or those born between 1981 and 1995. Millennials represent 38.6% of the workforce, compared with: Generation X, those born between 1965 and 1980, 34.8%; baby boomers, born between 1945 and 1964, 18.6%; Generation Z, born after 1996, 6.1%; and the Silent Generation, born before 1944, 2%.³ Different generational norms can result in misunderstandings and employment disputes. Training programs on how to manage different generations in the workplace can help mitigate this exposure.
  
  Differences in expectations and communication styles can be significant between workers who are decades apart in age and work experience. Conflicts and employment practices liability claims may arise, not only from employee interactions but also potentially in scenarios involving vendors or customers. The Equal Employment Opportunity Commission (EEOC), which enforces federal laws on employment discrimination, filed 142 lawsuits against employers in fiscal 2024, down slightly from 158 in fiscal 2023.4 Regulatory enforcement actions often are accompanied by private civil litigation.

• Layoffs – Private employers have an increased exposure to employment practices liability claims when laying off staff during economic downturns. Claims that commonly arise from layoffs may allege older workers were targeted or certain minority groups were disproportionately impacted.
• Employee crime, fraud, and dishonesty – Still another factor relating to workplace risks is employee crime. First, fraud and dishonesty tend to increase during troubled economic times. Some workers experiencing financial strain may justify stealing assets from their employers, and the losses may prompt litigation by other employees or investors. Second, companies are more likely to detect theft during economic downturns as they are watching their expenses and bottom line more closely. Drive-by detection, in which business auditors look more closely at their books to save money, also can contribute to finding fraud and employee crime.
  
  A study by the Association of Certified Fraud Examiners (ACFE) found the incidence of fraud and employee dishonesty increases during an economic recession. More than 55% of fraud examiners surveyed said fraud slightly or significantly increased in a 12-month period including a recession, when compared with prior years before the recession occurred. Among the reasons respondents listed were increased financial pressure, cited by 49.1%; increased opportunity to commit fraud, 27.1%; and increased rationalization, 23.7%.⁵

Against the backdrop of lingering uncertainty for private organizations is a growing trend in legal system abuse. This term applies to actions in the court system that can inflate the size of jury verdicts and settlements. Legal system abuse⁶ is evident in the rising number of large verdicts and volume of litigation, which continue to pose challenges for businesses and raise insurance costs.

Plaintiffs’ law firms have become aggressive and creative in pursuing litigation. Tactics they deploy that raise consumer costs include:

• Use of third-party litigation financing (TPLF). More plaintiffs’ attorneys have access to funding of lawsuits they otherwise would not pursue, yet only a handful of US states require disclosure of such third-party financing sources. TPLF can involve foreign financing, which can create intellectual property and security risks for private companies due to discovery proceedings.
• Misuse of attorney advertising. Touting large verdicts in ads promotes the idea that plaintiffs can win outsize awards regardless of the facts of their cases.
• Jury anchoring and “reptile brain” theory. These courtroom presentation techniques are designed to encourage jurors to award higher compensation to plaintiffs and to view defendants’ alleged behavior as threats to life and safety.
• Venue and forum selection. Plaintiffs’ attorneys shrewdly elect to file litigation in plaintiff-friendly jurisdictions that are frequently hostile to private businesses.
• Joint and several liability. Attempting to assign multiple parties each responsible for the full amount of damages, allowing the person owed to pursue full payment from any of the liable parties.

There is no shortage of potential targets for aggressive litigation. Of the 33 million businesses in the United States, 99% are privately held, according to the University of Chicago Booth School of Business.⁷

Private Management Liability insurance plays an important role in supporting the growth and profitability of privately held organizations. Having coverage in place during uncertain times (as well as stable times) can help protect a company’s assets. It also allows companies to recruit and retain key executives and directors if they know there is solid D&O insurance in place for them. Policy features respond to a variety of risks and mitigate financial losses.

D&O liability policies typically have three main insuring agreements:

Side A, which provides for indemnification of individual directors and officers when the organization is unable to indemnify them.

• Side B, which reimburses the entity for indemnification of directors and officers.
• Side C, which provides coverage for the entity itself.
  

Through these three insuring agreements, a company can protect its directors and officers from personal liability as well as protect its own assets. By including employment practices liability coverage, a company can also secure protection against certain types of employment claims as well as claims by third parties for discrimination and/or harassment.

Additional related coverages include fiduciary liability and crime. All employers that offer employee benefit programs have fiduciary exposures due to the potential liabilities and risks associated with being legally and ethically obligated to act in the best interests of their employee benefit plans. Crime policies respond to incidents of employee crime, fraud, and dishonesty and offer specific protection for direct losses from these acts. 

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