Wildfire-Related D&O Insurance Risk: Lessons and Litigation Trends

California and Hawaii wildfires have led to heightened examination of utilities and companies operating in high-risk regions. These events triggered significant regulatory penalties, property damage insurance claims, and multiple shareholder lawsuits against directors and officers of public utilities.

Allegations include violations of securities disclosure rules and breaches of fiduciary duty, according to Marsh and Norton Rose Fulbright‘s report. Beinsure analyzed the report and highlighted the key points.

Some of these lawsuits have been dismissed or are still in progress, but several have ended in large settlements, including eight- and nine-figure amounts.

In response to the potential for similar liabilities, underwriters of directors and officers insurance have begun applying more rigorous evaluations of environmental exposure — particularly wildfire risk — during policy structuring and pricing.

Considering the elevated scrutiny, companies operating in areas affected by wildfires would be prudent to maintain robust disclosure and governance practices in addition to taking responsible steps to reduce their wildfire-related risks.

5 Key Highlights

• Utilities and companies operating in wildfire-prone areas face increasing lawsuits and regulatory actions tied to environmental risk disclosures.
• Plaintiffs are targeting public statements on vegetation management, maintenance practices, and wildfire mitigation as potentially misleading.
• Wildfire-related D&O lawsuits are part of a broader trend in shareholder litigation linked to high-profile events and operational failures.
• D&O insurers are applying stricter environmental risk assessments, including wildfire exposure, when structuring coverage.
• Board-level engagement and accurate disclosures are key to minimizing liability and achieving early case dismissals.

The line between an early dismissal and a substantial monetary settlement can be a fine one, underscoring the importance that companies exercise additional caution in preparing and reviewing their public disclosures with respect to wildfire-related risks.

Boards should take steps to ensure appropriate director-level oversight of wildfire and other environmental risks.

The D&O insurance market has experienced favorable results in recent years, but ongoing risks and market uncertainties could challenge sustainability.

Wildfire-Related Shareholder Litigation Reflects Broader Event-Driven Trends

Wildfire-related directors and officers (D&O) lawsuits represent a growing category of event-driven shareholder litigation. These insurance claims arise from major environmental, safety, or other high-profile incidents that lead to reputational damage and a decline in enterprise value.

In these cases, plaintiffs commonly argue that a company’s earlier public disclosures failed to adequately represent the risks that later contributed to the adverse event.

In addition to securities class actions, derivative plaintiffs and bankruptcy litigation trustees may allege that directors and officers failed in their oversight responsibilities by not addressing wildfire-related risks.

As with other event-driven suits, attorneys representing shareholders in wildfire-related cases often review a company’s public statements issued in the years leading up to the event. They focus on disclosures that may downplay wildfire exposure or overstate the company’s readiness.

Any public communication may be examined, including SEC filings, earnings call transcripts, media interviews, statements to utilities regulators, public testimony, website content, and other public disclosures that address wildfire issues.

Underwriters in the D&O insurance sector in 2025 continue to benefit from significant price hikes and refined market practices adopted between 2019 and 2021.

These adjustments drove profitability back to healthy levels, according to Fitch Ratings.

However, the market’s improved performance has spurred increased underwriting capacity and intensified price competition, a trend unlikely to reverse soon.

According to D&O Insurance Insights, companies usually purchase insurance because lawsuits are expensive, and the costs associated with them are rising. Moreover, if companies do not have a good D&O insurance program in place it is unlikely that they will be able to attract top managerial talent, given the potential risks involved.

D&O insurance reimburses the defense costs incurred by board members, managers, and employees in defending against claims made by shareholders or third parties for alleged wrongdoing. D&O insurance also covers monetary damages, settlements, and awards resulting from such claims.

If the company cannot indemnify its directors, officers, or employees for amounts resulting from these claims, D&O insurance will step in to directly pay those costs – protecting the individual’s personal assets.

If the company indemnifies the individual for such costs, D&O insurance will reimburse the company for such indemnity. The D&O policy will also provide some coverage for the company itself if it is sued.

Statements Commonly Targeted in Wildfire-Related Securities Litigation

Plaintiffs in wildfire-related securities cases often focus on specific categories of public statements they allege to be misleading. These include:

Maintenance-Related Statements

Shareholders may challenge statements that appear to exaggerate the frequency or quality of wildfire-related maintenance activities.

This includes claims about inspection schedules, equipment upgrades, or infrastructure reliability. If internal practices fall short of these statements, plaintiffs may argue that the disclosures misrepresent actual conditions.

Vegetation Management Disclosures

Statements describing vegetation control efforts may also be targeted. Claims that overstate the scope or success of vegetation removal programs — especially if inconsistent with post-event findings — can be cited as grounds for liability.

Companies are expected to ensure such statements reflect verifiable facts and do not suggest broader coverage than actually exists.

Consultants, Monitors, and Risk Mitigation Plans

Disclosures regarding the use of third-party consultants or internal programs aimed at wildfire risk reduction may be scrutinized.

If a company announces new plans or partnerships following prior events but fails to implement the proposed measures, plaintiffs may argue that the disclosures were misleading. This includes representations about expert evaluations, external monitors, or system upgrades that remain unexecuted.

Risk Disclosures

Statements describing wildfire risk may come under review if they appear to frame the danger as purely hypothetical or climate-driven while omitting references to known operational deficiencies.

Plaintiffs may contend that these disclosures shift focus away from internal safety or maintenance issues, mischaracterizing the nature of the risk.

Litigation Contingency Disclosures

Disclosures about ongoing or potential wildfire-related legal exposure may also be challenged. Plaintiffs may argue that a company’s statements understate the likelihood or scale of liability, especially when the scope of damages is already understood internally.

Strategies for Reducing Wildfire-Related D&O Risks

Public companies that operate in areas susceptible to wildfires should exercise vigilance in their disclosure and governance practices to reduce D&O liability risk and maximize the prospects for early dismissal.

In addition to taking responsible steps to reduce the underlying wildfire risks, companies should consider the following disclosure and governance steps to mitigate D&O liability risks.

Reducing wildfire-related D&O risks requires boards and executive teams to prioritize clear oversight, transparent communication, and proactive planning.

Directors must take an active role in understanding how wildfires may affect company operations, particularly in regions prone to extreme weather. Establishing strong governance practices that integrate environmental risks into strategic decisions helps reduce potential liability.

One key area of focus is corporate disclosure

Companies that operate in wildfire-prone areas or whose business models rely on vulnerable supply chains must clearly communicate these exposures in their public filings.

Inadequate or misleading disclosures can lead to shareholder lawsuits, especially following a wildfire event that causes significant loss.

Aligning with recognized frameworks, such as the TCFD, adds structure and credibility to these disclosures.

Operational risk management also plays a role

Companies must demonstrate that they have identified wildfire threats and taken reasonable steps to mitigate them. This includes contingency planning, scenario testing, and implementation of fire prevention strategies where applicable.

For some sectors, particularly utilities, these measures are not just best practices but essential protections against significant claims.

Directors should review their D&O insurance policies regularly to ensure wildfire-related claims fall within scope. As wildfire exposure increases, some insurers are tightening coverage or adding exclusions.

A policy that fails to account for these developments could leave directors exposed during litigation.

Communication with shareholders, regulators, and the public before and after wildfire events helps manage expectations and reduce reputational fallout.

If a company is perceived to have taken environmental risks seriously, directors are less likely to face personal legal exposure in the aftermath of a crisis.

Attention to legal developments is necessary

Lawsuits involving wildfire-related board oversight failures, particularly in the energy and utilities sectors, offer useful guidance. Directors who understand how courts are interpreting fiduciary duties in these cases are better equipped to protect themselves and their companies.

Recommendations for Accurate and Coordinated Wildfire-Related Disclosures

• Companies must avoid overstating wildfire-related safety practices, including equipment maintenance, vegetation management, and related activities. Those responsible for public disclosures, including senior leadership, should maintain direct communication with personnel who oversee these operational areas to ensure accuracy.
• Public disclosures should reflect any current compliance or safety gaps. Risk disclosures must avoid generic language and should not suggest that safety or regulatory shortcomings are limited to future risks if current deficiencies exist. Companies should ensure that all statements — including risk factors — are based on current, supportable information.
• SEC filings and other public communications should be reviewed regularly to prevent repetition of outdated or unsupported statements about wildfire mitigation. Where past measures have changed or fallen short, disclosures must be updated accordingly.
• To support consistent and accurate communication, companies should consider forming a disclosure committee or centralizing oversight of public statements. Involving disclosure counsel in the review of all wildfire-related public disclosures — beyond those submitted to the SEC — can further reduce the risk of inconsistent or unsupported messaging.
• Crisis planning should include protocols for managing public communications in the aftermath of a wildfire. Companies often face pressure to release information quickly after such events, which increases the risk of inaccurate or incomplete statements if a disclosure framework is not already in place.
• Boards of directors for companies with operations in wildfire-prone regions should oversee management’s wildfire mitigation plans and ensure these issues are regularly addressed and documented in board materials. Plaintiffs in derivative actions increasingly use books and records requests to examine board oversight, making detailed documentation essential for potential litigation defense.
• Companies should consult with a qualified insurance advisor or broker when preparing to meet with D&O underwriters. These discussions often include questions about casualty limits, wildfire safety procedures, and how the company governs its public communications on the subject. Thorough preparation can support favorable underwriting outcomes and reduce long-term D&O risk exposure.

As wildfires continue to threaten residents in California and other states, organizations operating in those areas will face additional pressure to minimize D&O risks arising from wildfire-related disclosure and governance practices.

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AUTHORS: Marsh and Norton Rose Fulbright. Edited by Yana Keller — Editor at Beinsure Media