Insurance disputes in the United States are frequently based on a combination of coverage and claims-handling issues. Broadly speaking, coverage interpretation and policy ambiguity questions tend to predominate in commercial-lines coverage, especially general liability, commercial property, and business interruption issues where claims are generally more complex than in personal-lines risks, such as automobile and homeowners’ coverage. In personal-lines claims, where policy text tends to be simpler and its interpretation more routine, claims-handling issues tend to predominate.

One of the most significant factors animating insurance litigation is the availability of extra-contractual or “bad-faith” remedies. Because insurance law in the United States is mainly governed at the state level, the available remedies vary, sometimes widely, among the 50 states. In most states, insureds have to prove insurers unreasonably delayed or denied payment of a covered benefit, sometimes requiring additional proof that the insurers acted with knowledge or reckless disregard of the unreasonableness of their conduct or position in first-party claims. Extra-contractual recovery can include consequential damages beyond the policy limits and emotional distress for individual insureds. A growing number of state legislatures have enacted laws that create additional penalties, such as damage multipliers (double or even treble damages), recovery of attorney fees, and high interest rates (up to 18%) for insureds who can prove that insurers unreasonably delayed or denied payment of a covered benefit. The availability of such extra-contractual damages and penalties varies widely from state to state, and has dramatically incentivised expansive insurance litigation in some states with harsher penalties.

Policy language is a significant factor in many US-based coverage disputes. Generally, policy interpretation is a legal question for a judge, rather than a factual question for a jury. Most US jurisdictions apply contract-interpretation rules to insurance policies, constructing policy terms based on their plain meaning, unless they are specifically defined in the policy. Interpretive standards, or “canons”, of construction are used to aid in assessing the plain meaning of policy language. Ambiguous terms are construed to favour coverage, and unlike in other contracts, in some jurisdictions courts may not consider extrinsic evidence of parties’ intent to interpret ambiguous terms, but will instead adopt the insured’s reasonable interpretation over the insurer’s.

Policy forms – declarations, coverage booklets or primary coverage forms, and endorsement – are generally construed together if possible. If there is an inconsistency that cannot be harmonised by reading the policy forms together, courts will generally construe endorsements as the latest expression of intent, especially when endorsements are specifically contracted for or added after the primary documents are in place.

One frequently litigated issue involves the determination of who is an insured, sometimes requiring analysis of policy declarations, definitions in primary coverage forms, and additional-insured endorsements. In recent years, broadly worded additional-insured endorsements that identify additional insureds by their role in a particular project or work (eg, describing all general contractors or site owners as additional insureds) has resulted in litigation as putative insureds vie for insured status under the endorsement. Such endorsements generate even more questions.

In personal-lines policies, similar additional-insured issues arise when a person’s status as a resident relative in the named insured’s household is questioned, requiring analysis of familial relationships to determine whether someone is a relative, as well as the various factors that determine residency, an analysis that is further complicated when individuals have multiple potential places of residency (eg, adult children of divorced insureds who split time between their parents’ residences and university housing).

Insurers and insureds, alike, frequently explore options for early resolution of insurance disputes, including early mediation or filing of early dispositive motions to get prompt rulings on purely legal issues. Increasing litigation expenses, long waiting time for trial dates, and uncertainties about how lay jurors will respond to complex coverage issues, are frequently identified as motivators for seeking early resolution. In cases where the primary dispute involves interpretation of policy text or other pure legal issues, litigants may file early summary-judgment motions, asking the judge to construe the policy and apply the policy interpretation to undisputed facts. Such early rulings may resolve core issues that may make settlement more likely or, in some cases, resolve the entire case.

Many US jurisdictions either mandate or strongly encourage mediation or other forms of alternative dispute resolution to facilitate settlement. Rule 26(f) of the Federal Rules of Civil Procedure requires litigants to confer early about the possibilities for promptly settling or resolving the case, and Rule 16(a) empowers courts to use court conferences to facilitate settlement, among other things. Many states have copied the federal approach or adopted analogous procedures to encourage early discussions about the potential for settlement. Mediators with specialised experience or training in insurance-related disputes are available in most US jurisdictions. In addition to private mediation services, some federal and state courts allow magistrate judges or other judicial officers to provide free, or lower-cost, mediation services.

With increasing litigation expenses impacting both insurers and insureds, there is generally a strong incentive to pursue early settlement as an alternative to costly litigation. Long wait times for trial dates frequently have a disproportionate impact on insureds and sometimes lead to settlements out of necessity. For insurers, the proliferation of “nuclear” or highly unpredictable jury verdicts and judicial aversion to dismissing entire cases on summary judgment incentivise early exploration of settlement.

Many insurers have adopted early-case assessment tools designed to require in-house professionals and outside counsel to strategise shortly after receipt of a new lawsuit to address, among other things, the possibility and desirability of early settlement. Those tools help insurers and their lawyers to spot opportunities for early settlement, identify problems in pre-litigation claim handling that make early settlement desirable, and develop strategies for engagement with insureds and their counsel.

In the United States, the determination of which law to apply to insurance and reinsurance contracts is, itself, a matter determined primarily by the law of the state where the dispute has arisen, referred to as the “forum state”. It is principally the role of a court to make the choice-of-law determination. Courts apply three primary methodologies to determine which jurisdiction’s substantive law governs insurance policy interpretation:

• the Restatement (Second) of Conflict of Laws most significant relationship test (the majority approach, followed by roughly two-thirds of states);
• the traditional lex loci contractus rule (the minority approach, retained by a handful states including Florida and Georgia); and
• hybrid or government interest approaches used in a few jurisdictions.

When an insurance policy contains an express choice-of-law clause, most courts will honour party autonomy under Restatement (Second) § 187, as long as there is some substantial relationship between the jurisdiction whose substantive law is chosen in the policy and as long as the state does not have a significant public-policy interest that is contrary to the law of the jurisdiction selected in the contract. Reinsurance treaties are treated differently because the parties are sophisticated commercial entities, which generally means that forum courts will not be as focused on consumer-protective public-policy interests and will generally be more likely to honour parties’ choice-of-law selections.

In US courts, choice-of-law determinations for insurance policies generally apply the “most significant relationship” or “centre of gravity” approach, often following the Restatement (Second) of Conflict of Laws §§ 6, 187, 188, and 193. This approach considers factors such as place of contracting, negotiation and performance, domicile or place of business of the parties, and principally, the location of the insured risk. Courts also consider government interests, especially when faced with conflicting state laws affecting coverage, notice provisions, or contractual obligations.

These rules generally apply across different lines of insurance, with some variation. Property and casualty insurance policies are generally subject to the law of the principal location of the insured risk under § 193. In life-insurance cases, courts apply the general most-significant-relationship factors, with the insured’s domicile and the place of contracting having greater weight.

Marine insurance is governed partly by federal admiralty law, which can displace a state-law choice-of-law analysis when the federal maritime law provides a uniform rule. Reinsurance treaties, as well as surplus and excess lines policies, are often issued to sophisticated commercial insureds, which generally means that courts will be more interested in enforcing the parties’ freedom to contract and less concerned about the public-policy goals of protecting consumer rights.

Courts in US jurisdictions typically enforce forum selection in insurance contracts. But enforceability depends on:

• whether the federal or state framework governs;
• the type of insurance involved (surplus lines, reinsurance, commercial, consumer/personal lines);
• the nature of the parties (sophisticated commercial insureds versus individual consumers); and
• whether a state insurance code expressly prohibits such clauses.

The majority of US states will generally uphold these clauses in the absence of fraud, overreaching, deprivation of the right to litigate, or a strong public-policy violation. A minority of states have enacted statutes that prohibit forum-selection clauses in admitted insurance contracts delivered in-state, while often carving out surplus lines and other non-admitted policies.

Forum-selection clauses appear most frequently in surplus and excess lines insurance, reinsurance, and marine insurance, and are generally recognised as enforceable even in states that otherwise disfavour such clauses. Forum-selection clauses are appearing with greater frequency in some commercial policies covering directors and officers, errors and omissions, and professional liability risks, particularly those involving large commercial insureds with negotiated or manuscript coverage forms. These clauses are less common, and more likely to trigger judicial scrutiny, in personal-lines policies sold to individual consumers. In the case of health or disability policies governed by the Employee Retirement Income Security Act of 1974 (ERISA), federal courts are split on the enforceability of such clauses.

Cross-border insurance disputes in the United States present a range of jurisdictional and choice-of-law challenges. State courts apply their own choice-of-law rules, with most states using the most-significant-relationship test from the Restatement (Second) of Conflict of Laws. Federal courts sitting in diversity (ie, hearing a case arising under states law), follow the choice-of-law rules of their sitting state, focusing on significant contacts and state interests to avoid arbitrary or unfair selection of law. The Restatement (Second) of Conflict of Laws §§ 6, 188 and 193 guide courts to consider the state with the most significant relationship to the contract or insured risk, frequently favouring the insured’s domicile or the place where the insurance contract was negotiated, performed, or executed. Where multiple jurisdictions are implicated, most courts analyse policy interests such as the protection of justified expectations, regulation of conduct within state borders, and fairness to insured parties, often weighing these against the place of contracting and the location of the insured risk.

Practical challenges in cross-border disputes include interpreting conflicting choice-of-law and forum-selection clauses, balancing local interests of the different jurisdictions with contractual provisions, and addressing forum non conveniens (a defendant’s objection to the plaintiff’s choice of forum) issues, which generally favour the insured’s forum choice if it is rationally related to the dispute. Ultimately, the outcome will depend on the balancing of statutory directives, judicial precedents, public-policy concerns, and procedural considerations unique to each dispute.

When a party files suit in breach of an exclusive forum-selection clause or an arbitration clause, US federal courts possess a range of remedies: transfer under 28 USC § 1404(a), dismissal on forum non conveniens grounds, stay and compel-arbitration orders under the Federal Arbitration Act (FAA), and – in limited circumstances – anti-suit or anti-arbitration injunctions. The governing frameworks differ depending on whether the clause designates another federal forum, a state or foreign forum, or an arbitral tribunal.

Federal and state courts in the United States generally enforce exclusive forum-selection and arbitration clauses according to principles established in the Federal Arbitration Act and Supreme Court precedents, including Atlantic Marine Construction Company v US District Court for Western District of Texas, 571 US 49 (2013) and M/S Bremen v Zapata Off-Shore Company, 407 US 1 (1972). The courts will enforce these clauses unless it would be unreasonable, unjust, or fraudulent to do so. When parties agree to arbitrate, courts can stay proceedings under § 3 of the Federal Arbitration Act or compel arbitration under § 4. The courts may dismiss rather than stay cases when all claims are arbitrable. The New York Convention governs international arbitral awards, overlapping with Federal Arbitration Act provisions but differing in that the courts often dismiss rather than stay proceedings post-referral, and the courts do not retain jurisdiction pending arbitration under the Convention. Limited discovery is allowed concerning the existence and scope of arbitration agreements, while challenges to arbitration orders fall under the Federal Arbitration Act’s appellate review rules. Circuit splits exist about interlocutory appealability and power to grant injunctions related to arbitration proceedings.

Anti-suit injunctions are disfavoured due to international comity principles and must meet strict requirements, including showing that foreign litigation threatens the issuing court’s jurisdiction or infringes public policy. Federal courts may enjoin foreign suits when a valid forum-selection clause exists, particularly to prevent frivolous or vexatious litigation and forum shopping. However, such injunctions are rare. Enforcement of forum-selection clauses in state courts varies and can be denied if enforcement would cause undue hardship or injustice.

US courts have not yet developed a particular choice-of-law framework specifically for AI disputes. Instead, federal and state courts apply traditional jurisdictional and conflicts-of-law doctrines – personal jurisdiction under long-arm statutes, the most-significant-relationship test, lex loci delicti, and other well-established doctrines – to AI systems whose training data, operations, developers, and injured users span multiple states. The dominant emerging trends include:

• courts finding personal jurisdiction in states where AI outputs cause harm and where AI companies maintain significant commercial contacts;
• the continued application of the state-by-state approach to choice of law; and
• increasing pressure to rationalise these conflicts through a unified federal framework.

In trending AI liability contexts, indemnity agreements are used to spread risk, recognising that AI developers and operators may contribute to potential harms.

The United States has a strong federal policy favouring arbitration. The Federal Arbitration Act (FAA) makes a written arbitration provision in a contract affecting interstate commerce valid, irrevocable and enforceable, subject only to ordinary contract defences (9 USC § 2). The courts routinely enforce arbitration clauses in reinsurance treaties and large commercial insurance programmes, where arbitration is the market norm.

Insurance is the important exception. Under the McCarran-Ferguson Act, no federal statute is construed to supersede a state law enacted to regulate the business of insurance unless the federal statute specifically relates to insurance (15 USC § 1012). Because the FAA does not mention insurance, a state statute that prohibits or limits arbitration of insurance disputes can reverse-preempt the FAA. The practical result is a patchwork: many states restrict or bar mandatory arbitration clauses in consumer and certain direct insurance policies, while reinsurance and commercial arbitration agreements are generally upheld.

For domestic awards, the FAA directs that a court must confirm an award unless it is vacated or modified on the narrow statutory grounds in Sections 10 and 11 (9 USC §§ 9–11). Federal courts read the US Supreme Court’s decision in Hall Street Associates, L.L.C. v Mattel, Inc. as making those statutory grounds exclusive, so parties cannot contract for expanded judicial review (Citigroup Global Markets, Inc. v Bacon, 562 F.3d 349 (5th Circuit 2009)). Whether manifest disregard of the law survives as a vacatur ground remains the subject of a circuit split, with some courts treating it as abandoned and others as a gloss on the statute.

Foreign and non-domestic awards are enforced under the New York Convention, implemented through Chapter 2 of the FAA, which requires confirmation unless an Article V defence applies (9 USC § 207). The Panama Convention operates similarly through Chapter 3 (9 USC §§ 301–307). Enforcement is a single-step, summary process in which the court has little discretion and the party resisting bears a heavy burden (CBF Indústria de Gusa S/A v AMCI Holdings, Inc., 850 F.3d 58 (2nd Circuit 2017); Chevron Corp. v Republic of Ecuador, 949 F. Supp. 2d 57 (D.D.C. 2013)). Only courts in the primary jurisdiction, the seat of the arbitration, may vacate an award; other courts may only enforce or refuse enforcement (Corporación AIC, SA v Hidroeléctrica Santa Rita S.A., 66 F.4th 876 (11th Circuit 2023)).

Arbitration is near-universal in reinsurance and common in large commercial placements, but far less available in consumer lines because of state restrictions. Reinsurance clauses frequently include honourable engagement provisions that relieve arbitrators of strict rules of law and allow tailored equitable remedies (First State Insurance Co. v National Casualty Co., 781 F.3d 7 (1st Circuit 2015)). They may not, however, rewrite the contract they are appointed to interpret (PMA Capital Insurance Co. v Platinum Underwriters Bermuda, Ltd., 659 F. Supp. 2d 631 (E.D. Pa. 2009)).

Confidentiality is not automatic. Parties commonly sign standard-form confidentiality agreements, and arbitrators, not courts, generally decide disputes over their scope (Trustmark Insurance Co. v John Hancock Life Insurance Co., 631 F.3d 869 (7th Circuit 2011)). The scope for challenge or appeal is deliberately narrow; judicial review of arbitral awards is among the narrowest known in the law (First State Insurance Co. v National Casualty Co., 781 F.3d 7 (1st Circuit 2015)). Parties seeking a merits review sometimes adopt optional appellate-arbitration procedures by contract.

In the US, insurance coverage litigation is evolving rapidly to address new risks, changing judicial interpretations, and the emergence of new liability categories. Across major lines, including general liability, D&O, cyber, property, and business interruption, new issues are arising from growing areas of risk including PFAS and other contaminants, opioids, climate change (flood, wildfire, drought), and the proliferation of AI. In many cases, insurer, insureds and the courts are addressing these novel risks using policy language drafted decades before many of these risks existed or were fully understood. These trends reflect ongoing efforts to stretch existing coverage frameworks to address novel and unforeseen risks.

Professional-liability insurance disputes often arise where coverage intersects with general-liability coverage, especially regarding exclusions tailored for professional services in claims-made policies. Further, professional-liability claims increasingly involve complex financial and intangible losses outside of traditional “bodily injury” and “property damage” concepts.

Directors-and-officers insurance is impacted by growing AI and cyber-risks exposures, including the development of specialised endorsements creating or limiting coverage, new sub-limits, and the growth of specific cyber-insurance coverage types. Corporate directors and officers are increasingly expected to have an active role in cybersecurity.

Courts in the US tend to enforce insurance policy language according to the plain and ordinary meaning of the terms at the time of contracting, allowing words and phrases to be construed according to a more technical meaning where context dictates or where words and phrases are specifically defined in the policy. If policy terms are unambiguous (meaning they are not susceptible to more than one reasonable interpretation in the context of the claim at issue), interpretation focuses solely on the language without recourse to extrinsic evidence, which is admissible only when ambiguity remains after the plain meaning is applied. Ambiguities in policy language are typically construed in favour of the insured and against the insurer. This reflects the principle that insurers draft policies and should bear the risk of unclear language. Courts recognise the insured’s reasonable expectations regarding coverage but will not extend coverage beyond clear and unambiguous policy limitations or exclusions. The reasonable-expectations doctrine applies predominantly when policy language is ambiguous or potentially unconscionable, and the courts undertake an objective assessment based on the insured’s viewpoint at the time the policy was issued.

The courts generally apply a multi-step interpretive approach to exclusions and exceptions from coverage: first determining whether the claim falls within coverage, next examining any applicable exclusions narrowly, and finally considering exceptions to exclusions that might reinstate coverage. Endorsements, whether issued contemporaneously or later, are treated as modifications to the basic policy and generally offer control over conflicting policy provisions in the absence of explicit language to the contrary. The courts also guard against “illusory” coverage, invalidating exclusions that effectively negate coverage promised in other policy sections. These interpretive principles operate in both manuscript and standard form policies, emphasising harmonisation of all policy forms and sections.

Cyber-related disputes involve both specialised cyber-policies and traditional coverage forms. Cyber-insurers have sought to develop cyber-warfare exclusions to address cyber-attacks by nation-state actors that may not necessarily fall within the traditional “war exclusions” found in many policy forms (see Merck & Co. v Ace Am. Ins. Co., 293 A.3d 535 (N.J. App. Div. 2023)). The courts also continue to wrestle with the boundary between “computer fraud” and “social engineering fraud” provisions, the latter of which often have dramatically different sub-limits. Courts have also had to address whether ransomware encryption causing no physical hardware damage constitutes “direct physical loss or damage” to electronic equipment.

AI-related insurance coverage disputes are increasing but have not developed a cohesive body of case law yet. Insureds frequently rely on existing policy frameworks such as general-liability policy advertising-injury provisions for AI-generated IP infringement claims; professional-liability or errors-and-omissions policies for AI-generated professional advice failures; cyber-policies for AI-related data breaches; and D&O policies for alleged misrepresentations about AI capabilities in securities filings. Insurers are developing AI exclusions in E&O and cyber-policies. It is foreseeable that generative AI copyright claims will be the subject of intense litigation under traditional general-liability coverage for advertising injury, and exclusions for many types of IP-rights violations.

The US courts have developed standards for determining the number of “occurrences”, applying per-occurrence versus aggregate limits, and allocating coverage across policy periods in a variety of cases, including mass tort, environmental, opioid, PFAS, wildfire, cyber, and product-liability litigation. The majority approach is the cause test, under which the number of occurrences is determined by the number of underlying causes rather than the number of injured claimants. New York applies an “unfortunate event” test. The courts are split on whether to apply a cause-based approach or a manifestation or injury-in-fact approach. Allocation methodologies include pro rata (time-on-the-risk) allocation, spreading losses among insurers based on years of coverage, or all sums (joint and several) allocation, which assign full loss amounts to each triggered insurer. Continuous trigger and all-sums versus pro-rata allocation disputes are a recurring feature of long-tail systemic loss coverage disputes. The courts tend to emphasise the policy language, type of injury, insured’s conduct, and continuity of harm in determining the number of occurrences and allocation of coverage, reflecting the complexity and fact-specific nature of these disputes.

Sanctions compliance, illegality doctrines, and public-policy considerations operate across three overlapping dimensions in US insurance litigation. First, federal sanctions administered by the Office of Foreign Assets Control (OFAC) can legally prohibit insurers from paying claims regardless of policy terms, changing what would otherwise be a contractual obligation into a potential federal violation, with potential criminal implications. Second, the common-law illegality defence and public-policy doctrine permit courts (and insurers) to deny coverage when the underlying conduct is criminal or intentionally harmful, though courts vary in how broadly they apply this principle. Third, the courts continue to struggle with the question of whether coverage for specific categories of losses such as fines, penalties and punitive damages are against public policy. Recent decisions from 2026 indicate a potential growing judicial resistance to the expansive use of public policy to override unambiguous policy terms.

Public-policy grounds may invalidate or limit enforcement of certain policy provisions, especially where clauses conflict with statutory mandates or fundamental principles, such as exclusions for illegal conduct or policies void by statute. The courts are cautious in applying public policy limitations due to their evolving nature and jurisdictional variation, particularly in determining whether a contract term is void as against public policy.

US insurance litigation concerning claims handling (including delays in investigation, valuation and payment) has continued to grow in both federal and state courts. Recent decisions from 2022 through to 2025 reinforce that unreasonable delay or denial of covered claims exposes insurers to extra-contractual liability under both common law bad-faith principles and state statutory frameworks. Regulatory agencies have also heightened enforcement attention, issuing guidance warnings that delays attributable to systemic insurer practices, not just individual errors, may constitute unfair claims settlement practices. The practical impact on coverage disputes is that insurers face dual exposure from breach-of-contract and bad-faith claims, and the remedies, which range from doubled benefits to punitive damages and attorneys’ fees, significantly increase litigation stakes. An insurer may incur bad-faith liability not only for denying payment without justification but also for claim handling practices, such as unreasonable delays or inadequate investigations, provided the insurer lacks a reasonable basis for its conduct. However, legitimate disputes over coverage or fact do not necessarily constitute bad faith, especially when coverage issues are fairly debatable or there is reasonable cause for withholding payment. Importantly, an insured engaged in material fraud cannot pursue bad-faith claims. Punitive damages require a showing of egregious conduct distinct from the contract breach itself, such as harm independent from the contract injury or oppressive tactics by the insurer.

Common-law bad faith generally requires an insured to prove that the insurer acted without a reasonable basis for denying or delaying a claim. Bad-faith liability may also arise from inadequate investigations, coercive tactics, and deceptive practices. The “covenant of good faith and fair dealing”, which is implied in insurance contracts and forms the basis for tort liability in bad faith, requires factual investigations, prompt claim evaluations, and fair negotiations. All 50 states and the District of Columbia have enacted versions of the Model Unfair Trade Practices Act and the Model Unfair Claims Settlement Practices Act, prohibiting conduct such as failing to promptly acknowledge and investigate claims and compelling insureds to litigate by offering substantially less than ultimately recoverable amounts. However, the states are split as to whether these statutes may provide a basis for a private right of action. Even in states where these statutes do not form the basis for a private right of action, insureds are frequently able to use evidence of wilful or repeated statutory violations as a basis for a common-law bad-faith claim.

Not all claims delays are necessarily evidence of bad faith or unreasonable conduct. Delays due to the complexity of a claim are not necessarily bad faith, but delays stemming from reckless or malicious intent, or failure to investigate diligently, may establish liability. Such conduct potentially exposes insurers to compensatory and punitive damages, reflecting the courts’ increasing intolerance for dilatory or vexatious claim handling.

In first-party claims (those where benefits are owed directly to the insured), there is frequently an additional requirement that the insured must also prove that the insurer acted with knowledge or reckless disregard of that lack of basis for its conduct. In many jurisdictions, insureds suing insurers for bad faith in the context of liability insurance claims (eg, for breach of the duty to defend, indemnify, or settle a claim) need only show that the insurer unreasonably delayed or denied payment or otherwise acted unreasonably in connection with the claim) based on a standard equivalent to simple negligence.

Colorado has enacted one of the more insured-friendly statutory frameworks. Under Colo. Rev. Stat. § 10-3-1115, an insurer “shall not unreasonably delay or deny payment of a claim for benefits owed to or on behalf of any first-party claimant”, and the delay or denial is unreasonable if made “without a reasonable basis”. Importantly, the statutory claim does not require a showing of subjective bad faith – only unreasonable conduct – while the common-law claim also requires objective unreasonableness. The Colorado statute allows a successful insured to recover twice the covered benefit, plus attorney’s fees and costs, in addition to contract benefits, based on a showing of simple negligence. In effect, this can result in an insured recovery treble benefit if the insured recovers on the breach-of-contract claim and the statutory claim. Other states have enacted similar statutory remedies to compliment or supplement traditional common-law remedies.

Environmental, social, and governance (ESG) issues have continued to develop in directors-and-officers (D&O) coverage disputes, with insureds sometimes facing claims alleging misrepresentations about climate commitments, AI capabilities and data security practices. The insured-versus-insured exclusion remains a persistent area of disputes. Personal officer-and-directors’ coverage has become increasingly important as corporate indemnification becomes uncertain in large-scale derivative and government enforcement actions.

ESG-related disclosure risk remains dynamic: the Ninth Circuit stayed enforcement of California SB 261’s climate risk reporting requirement but did not stay SB 253’s Scope 1 and 2 greenhouse-gas-emissions disclosure requirement, indicating continued state-level activity despite a reduced federal ESG posture. Other states enacting pro-ESG measures include Colorado, Florida, Illinois, Maine, Maryland, New Hampshire, Oregon and Utah.

Wildfire-related insurance coverage disputes are multiplying, particularly in California, Colorado and other western states. Anti-concurrent causation (ACC) clauses, which deny coverage whenever an excluded peril combines with a covered peril to cause loss, are central in many of these disputes. Courts in several jurisdictions have enforced ACC clauses as clear and unambiguous contractual provisions, though some states have found ACC clauses unenforceable when inconsistent with mandatory state fire insurance statutes. The California wildfire crisis has also prompted state regulatory intervention, including restrictions on non-renewal and the expansion of the California FAIR Plan as an insurer of last resort, generating collateral coverage litigation over FAIR Plan scope and adequacy.

There is a perception in the market that the deregulation measures on the federal level may ease ESG-related risk in the D&O arena, with a significant rollback in federal environmental regulation in relation to energy production and the displacement of diversity, equity, and inclusion (DEI) policies. However, increased environmental, cyber, and AI-related risks will continue to create uncertainty in the D&O market.

When insurers delegate underwriting or claims-handling functions to managing general agents or third-party administrators (TPAs), it may create multiple challenges in coverage disputes, including:

• the scope and limits of actual authority conferred by the delegation;
• the attribution of the agent or TPA’s conduct to the insurer under agency principles;
• bad-faith liability when delegated claims handling is deficient; and
• estoppel and waiver arising from the agent’s conduct.

The majority rule is that insurers generally cannot escape liability for coverage or bad-faith claims by pointing to the intermediary’s conduct when that intermediary was acting as the insurer’s agent. However, the insurer’s liability will depend on whether the agent had actual, implied, or apparent authority, and on the specific statutory framework of the state.

The insurer’s duty of good faith and fair dealing is generally deemed non-delegable, meaning the insurer remains liable for bad-faith acts by third parties authorised to handle claims, even though these third parties cannot themselves be sued for bad faith in the absence of a contractual relationship. Courts apply agency principles where the third-party acts as the insurer’s agent within the scope of granted authority, thus imputing wrongful conduct to the insurer.

An agent’s authority to bind or represent may arise by implication or apparent authority, and agent or broker liability hinges on whether duties are owed to the insured, insurer, or both, with the courts recognising potential dual agency, but generally confining bad-faith liability to the insurer. Claims against agents frequently fall under negligence or misrepresentation theories, given their typically non-contractual status in respect of insureds.

An additional issue that arises is whether the agent or TPA may be subject to common-law or statutory bad-faith claims directly, resulting in the agent or TPA being added as a defendant in coverage and extra-contractual lawsuits. Indemnification clauses in the delegation agreement or the extension of errors-and-omissions coverage to the agent by the insurer may result in shifting of financial responsibility for the agent or TPA’s conduct back to the insurer based on these contractual rights and duties. Alternatively, indemnification may work the other way, with the insurer seeking recovery from the agent or TPA.

Other delegation-related issues arise as insurers continue to deploy AI in underwriting, risk management, fraud detection, and claim handling, which has become a point of contention in extra-contractual litigation. When third-party AI resources are utilised, some of the same agency liability issues may arise with respect to the acts or omissions of the AI agent employed by the insurer.

Financial lines insurance coverage disputes in the United States, including D&O liability, professional liability/errors and omissions (E&O), and financial institutions insurance, are being shaped by a range of evolving risks. The courts are actively developing the law on bump-up exclusions in M&A-related shareholder litigation, the scope of insured-versus-insured exclusions as applied to regulatory agencies and bankruptcy trustees, the enforceability of regulatory exclusions when government receivers sue failed-institution directors, and the allocation of D&O policy proceeds in insolvency. Recent landmark decisions from the Delaware Supreme Court and the Fourth Circuit provide critical new guidance that is reshaping coverage positions across all of these lines.

Among the most actively litigated issues in D&O coverage is the scope of bump-up exclusions, which bar coverage for any settlement amount representing an effective increase in the deal consideration paid in an acquisition. The courts have developed a two-step framework to assess these exclusions: (i) whether the underlying claim alleges that the consideration paid was inadequate; and (ii) whether the settlement amount actually represents the amount by which consideration was effectively increased (see Illinois Nat'l Ins. Co. v Harman Int'l Indus., Inc., No 47, 2025, 2026 WL 204209 (Del. 27 January 2026); and Towers Watson & Co. v Nat'l Union Fire Ins. Co. of Pittsburgh, PA, 138 F.4th 786 (4th Circuit 2025)).

Regulatory investigations and pre-suit inquiries are also a focal point for financial lines coverage disputes. Public company D&O policies typically cover defence costs for SEC investigations involving directors and officers. However, many policies do not extend to informal inquiries, making the definition of claim and the trigger for coverage pivotal in an enforcement environment where investigations can persist for years before any formal proceeding. The courts have recognised that, depending on policy language, a civil investigative demand can qualify as a claim under E&O policies, and timing, pending-and-prior litigation exclusions, and the characterisation of False Claims Act settlements (restitution or disgorgement versus compensatory payments) continue to drive outcomes under claims-made D&O and E&O programmes.

Additionally, D&O exposures are increasing related to AI and cyber-risks, with insurers and insureds negotiating policy terms to address potential AI or cyber-exclusions, sub-limits, and routing of claims to cyber-specific coverage; companies are correspondingly increasing purchase of cyber-coverage. Expectations have increased for directors to monitor cybersecurity, while insurers deploy AI in underwriting, risk management, fraud detection, and claims handling. At the same time, federal-level deregulation efforts and a pivot away from DEI efforts may reduce D&O and EPL exposures.

Lawsuits involving homeowners’ insurance coverage disputes unrelated to hurricanes have surged recently, including claims arising from western wildfires, hail, and other storm-related damage.

Liability insurance coverage litigation has continued its upward trend since 2022, driven, in part, by insurers making more assertive coverage denial decisions (which some commentators link to increased inflationary pressure on insurers), the emergence of novel liability scenarios related to technology and environment risks, including cybersecurity, ESG-related liability, and AI risks.

Although pandemic-related claims have waned, business-interruption claims continue to rise, driven partially by climate-related disruptions, with a majority of 2025 BI filings related to hail, storms, floods, and other weather events.

In general-liability coverage, environmental claims involving hazardous substances such as PFAS are a major source of coverage disputes as courts continue to grapple with the “absolute” pollution exclusions that limit liability for contamination, toxic torts, and claims, while still addressing legacy policy forms that contain “sudden and accidental” pollution-exclusion language. There are ongoing issues whether clean-up costs constitute “damages” and policy trigger theories (exposure, manifestation, continuous trigger) affect coverage allocation, fuelling complex multi-policy litigation.

In 2025, carriers reported underwriting losses of USD1.65 billion for general liability, USD960 million in commercial auto losses and USD190 million for products liability. Commercial trucking and personal auto claims continue to rise in Texas. According to Insurance Counsel of Texas’s 2026 Market Report, citing The Civil Justice Environment for Motor Vehicle Litigation in Texas (22 April 2026), the average severity of private passenger auto bodily injury claims has risen 133% in the last ten years, medical inflation increased approximately 28% during the same period and the share of Texas auto injury lawsuits increased from 74% in 2019 to approximately 82% in 2025. What remains unknown is how these figures may be impacted by driverless vehicles. Current research supports driverless cars, and fully autonomous vehicles show lower overall crash rates per mile than vehicles with human drivers.

Artificial intelligence is already making notable changes to the risk landscape with increased litigation being filed by pro se plaintiffs, who are relying heavily upon AI to draft pleadings, and the increasing use of novel, untested legal arguments. Because Texas, like other jurisdictions, has relatively low pleading standards and because the courts historically give pro se plaintiffs deference, even questionable cases filed by pro se plaintiffs are more likely now than before to survive initial dispositive motion practice. As a result, even when cases have questionable or even no more merit, the use of AI increases the resolution value to insureds and insurers.

Priority regulatory change in Texas includes increased medical billing transparency, modernising standards for admissible non-economic damages and the required disclosure of third-party litigation funding (TPLF). Texas has also recently passed legislation to tighten up timelines for appraisal to allow property claims to potentially be resolved more quickly.

From 2009 through to 2024, Texas recorded 230 jury verdicts exceeding USD10 million, often referred to as nuclear verdicts. This is the highest total of any state for this same period. These verdicts resulted in more than USD48 billion in awards. In 2024, Texas ranked fourth nationally in total nuclear verdict awards (see Litigation Abuses in Texas: Costs, Causes and Policy Implications (ICT 2026)). The increase in nuclear verdicts has emboldened plaintiffs to push cases to trial versus settlement, leading to increased defence costs for both trials and probable appeals.

In 2026, the Texas Supreme Court held that a party that settles injury claims can still go after a non-settling party for its “fair share” if the contract includes a comparative indemnity clause tying payment to that non-settling party’s percentage of fault (S&G Engineers & Constructors, Ltd. v Scallon Controls, Inc. (Texas, 13 March 2026)). This ruling potentially changes the risk transfer landscape, particularly in the context of construction defect litigation. Litigation defence and settlement costs are now more prone to shifting as between a general contractor and a subcontractor where there are indemnity provisions contained within the contract documents. Subcontractors and their insurers should be prepared to review policy forms and contracts to ensure the insurers are not unknowingly assuming general contractor risk. Carriers for general contractors can now use this case law to push tenders of defence and indemnity down and shift those risks to the subcontractor layers.

Third-party litigation funding has also become more prevalent with some funding originating outside Texas. TPLF often leads to more aggressive legal tactics and rising fees, which supports protracted litigation with the injured party eventually receiving less in recovery after longer, more costly litigation. Continued efforts to put regulations or court rules into place governing the disclosure of TPLF entities are helpful tools in combating these practices.

As with litigation, AI also provides a notable increase in claim volumes. Pro se claimants rely heavily on AI claim presentment tools, demands, causes of action and untested evaluations, which make it even more challenging to reach claim settlement. As a result, claims without merit or with questionable coverage may be more susceptible to payment, increasing loss ratios and having an eventual impact on overall premium rates.

As a general rule, an injured third party is not in privity with the tortfeasor’s liability insurer and cannot sue the insurer directly. In the absence of a statute or a policy provision to the contrary, the claimant must first obtain a settlement or judgment against the insured, unless it holds an assignment of the insured’s rights or is a judgment creditor. Direct actions are therefore the exception, most often seen in auto and general liability disputes.

A minority of states permit direct actions by statute. Louisiana’s direct-action statute was significantly narrowed in 2024 and now allows a direct claim only where one of seven conditions applies, such as the insured’s insolvency, bankruptcy, or death, or where the insurer defends under a reservation of rights (La. R.S. 22:1269). Wisconsin makes a liability insurer directly liable up to policy limits and a proper party defendant in negligence actions, subject to a territorial limit for out-of-state policies (Wis. Stat. §§ 632.24, 803.04). Where no direct-action statute applies, claimants reach insurers through third-party beneficiary theory, equitable garnishment, or assignment of the insured’s claim.

The dominant trend shaping defence of claims against insureds is social inflation and the rise of nuclear and thermonuclear verdicts. Studies show juror sentiment has shifted decisively towards plaintiffs, with growing support for large punitive awards and a pronounced generational divide, driving higher awards across sectors. Third-party litigation funding is a significant accelerant, increasing case volume, extending timelines, and raising defence costs and settlement values.

These pressures are prompting responses on two fronts. States are increasingly regulating litigation funding through disclosure requirements and, in North Carolina, an outright ban on covered investments. Co-ordinated mass-tort campaigns continue to produce outsized verdicts subject to post-trial challenge. Insurers are responding with earlier case resolution, enhanced reserving, and support for tort-reform legislation aimed at “Reptile-style” tactics and funding transparency.

Historically, a primary impact on the insurance and reinsurance market in Texas has been catastrophic weather events in the form of tropical storms and hurricanes. In 2025, the United States experienced 84 natural catastrophe events. Texas ranked third nationally in wildfires and led the nation in tornado and hailstorm events. An ongoing political discussion is whether these weather events can be attributed, at least in part, to global warming.

Trade tensions, global conflicts and sanctions impact this jurisdiction, particularly due to costs associated with increased material rationing, lack of supplies and the costs associated with repairs and rebuilding. Likewise, Texas’s construction industry utilises an ethnically diverse workforce. The instability in federal immigration policy has had a direct impact on the availability and reliability of this workforce to respond in both catastrophic and non-catastrophic arenas.

Any additional restriction or sanction associated with increased cost-of-claim resolution impacts the ability of a carrier to resolve claims in both first and third-party contexts. For example, travel restrictions can adversely affect a dispute outcome; and geographical location or a nationality which precludes travel may prevent experts with the unique knowledge, education and training required in more sophisticated and nuanced issues from being able to assist.

As federal government policies change, traditional, tested risk assumed by a carrier can reasonably be impacted. For example, can a federal government’s identification of an act as “terroristic” be dispositive of the coverage afforded by a liability policy’s terrorism endorsement? Similarly, does a federal government’s identification of an otherwise criminal act as “justified” render a policy exclusion for intentional or criminal conduct ineffective? Is a conflict an act of “war” or unrest sufficient to move a particular event in and out of coverage based upon the utilised political terminology? All of these scenarios create uncertainty in the insurance arena on a state, national and global scale.

Trade tensions and sanctions impact this jurisdiction largely because they increase the material costs associated with repair and rebuilding. The real-time increased cost of materials, along with changes in the law and ordinances, are increasing cost estimates and causing disputed claims to go to litigation without settlements.

Likewise, Texas’s booming construction industry utilises an ethnically diverse workforce. The instability in federal immigration policy has had a direct impact on the availability and reliability of this workforce.

Policy wording must keep up with the ever-changing vocabulary and terminology necessary to properly identify the scope of risk a carrier is reasonably assuming. Historically, geopolitical uncertainty can cause downward trends in the economy. When economies struggle, insurance claim volumes also tend to increase.

A primary risk emerging in many markets is cyber-risk accelerated by the use of AI. AI supports criminals targeting smaller, non-technical operations that typically do not have the infrastructure necessary to avoid a crime. There appears to be an increase in cyber-claims among real estate agents, title companies, and health-care providers.

A second emerging risk is the use of third-party litigation funding in the first-party property context. Historically, TPLF has been associated with liability and personal injury claims. As a way to avoid policy anti-assignment provisions, funders are utilising a TPLF-type process, such as using deeds of trust to secure an interest in claim proceeds from an insured. The TPLF entity thereby gains control of claim costs, recovery and decision-making in how to advance claims to litigation.

Law and ordinance coverages are increasingly impacted by what constitutes a government-mandated requirement sufficient to trigger coverage. Required compliance with environmental mandates increases the cost of claim resolution. 

It is incumbent upon underwriting departments to stay abreast of local, state and national mandates governing a particular risk in determining whether a policy limitation or exclusion will withstand scrutiny.

Data protection and privacy laws are not keeping pace with the growing threat of cyber-incidents. Consequently, underwriting decisions are not able to keep pace, resulting in policies covering risks for which an appropriate premium is not being charged and which have gaps in coverage. Policy forms and endorsements are being challenged by the interplay between specialised cyber-policies and traditional policies. For example, an active data breach would expect to be afforded coverage by a specialised cyber-policy, but the policy might also leave exposed costs associated with digital asset restoration during a mechanical failure. 

Likewise, in the context of property resolution, policies often look to appraisal provisions to resolve disputes about an amount of loss. The traditional policy’s appraisal provision is unlikely to be sufficiently nuanced to serve as a helpful framework for resolving the disputed amount of loss for a cybercrime. By way of example, the pool of qualified appraisers and umpires for a cyber-theft claim will likely be much smaller than the typical pool of appraisers and umpires for a traditional commercial property loss. Yet, policy appraisal provisions make no distinction about who is suitable and qualified to serve as an appraiser and umpire for a cyber-theft claim.

Unlike more traditional, standalone buildings, data centres face severe insurance challenges due to their interconnected digital networks with massive concentrations of high-value equipment. A traditional commercial property policy, even one operating on a surplus lines basis, will probably not be sufficient to cover the risks unique to this type of structure and operations. In addition, due to the dearth of risk-assessment data and tools, an immediate challenge to property carriers is how to determine the appropriate premium. A single centre can cost billions of dollars to build and equip. It remains challenging to assess the rebuild cost, particularly when a carrier takes into account the repair or replacement timelines required to make serviceable specialised servers and equipment.

In many ways, social media addiction and related mental health risks continue to rise, as does the impact on liability coverages afforded to individuals involved in these circumstances. These trends, coupled with AI, create unique opportunities for liability to arise, and test bedrock policy terms such as what constitutes an “occurrence”, what acts are “intentional”, when the actual harm is “unintended”, and what conduct is “reasonably foreseeable” in a social media arena? As social media and mental health impacts increase, so does the risk exposure to carriers. 

Underwriting processes reliant upon simple, often perfunctory, property inspections will no longer suffice. The insurance market must develop a more robust underwriting model which accounts for next-generation technologies, transformative building materials, and business processes premised upon no-touch and no-cash exchanged technology. An insurance market leaning into an understanding of the burgeoning technologies will lead the way in underwriting, issuing policies and achieving a profit.

Insurance in the United States is regulated primarily at state level, co-ordinated through the National Association of Insurance Commissioners (NAIC), which develops model laws for states to adopt. Every state has adopted unfair trade practice and unfair claims settlement statutes based on NAIC models, enforced principally by state insurance commissioners through investigations, market-conduct examinations, and penalties up to licence revocation.

Artificial intelligence is the leading current focus. The NAIC’s 2023 Model Bulletin expects insurers to maintain a documented AI systems programme addressing governance, bias testing, and vendor oversight across underwriting, pricing, and claims handling, and ties those expectations to existing unfair-discrimination laws. Several states have gone further, most notably Colorado’s regime governing external consumer data and predictive models. The NAIC is also piloting an AI evaluation tool across a dozen states to standardise supervisory review. Operational resilience and cybersecurity are a parallel priority, anchored by the NAIC Insurance Data Security Model Law and its 72-hour breach-notification standard.

Bad-faith and claims-handling reform remains active at state level. Florida’s 2023 tort reform introduced a 90-day safe harbour, codified that mere negligence is not bad faith, and added an interpleader mechanism for multi-claimant situations; competing bills would partly roll back those changes and revive fee entitlements for insureds. Proposed Florida legislation would also bar AI from being the sole basis for a claim denial and require independent human review.

At national level, the NAIC is advancing a registry for third-party AI model and dataset vendors and updating its consumer privacy model law. For insurers, the practical effect is heightened documentation, governance, and human-oversight expectations in claims handling, alongside continued adjustment of policy wordings to address AI, cyber, and litigation-funding exposures.