The global data center industry is experiencing unprecedented growth. According to Fortune Business Insights, the global data center market reached $269.79 billion in 2025. This market is projected to grow to $300.64 billion in 2026, and then more than double to $699.13 billion by 2034, reflecting a compound annual growth rate (CAGR) of approximately 11.10%. North America accounted for roughly 38.5% of the global market share in 2025. The capital flowing into this sector is staggering: McKinsey estimates that companies across the compute power value chain will need to invest $5.2 trillion into data centers by 2030 to meet worldwide artificial intelligence (“AI”) demand, with an accelerated scenario requiring as much as $7.9 trillion in capital investments. Goldman Sachs projects total hyperscaler capital expenditure from 2025 through 2027 will reach $1.15 trillion—more than double the $477 billion spent from 2022 to 2024—and anticipates roughly $7.6 trillion of cumulative AI-related capital expenditure between 2026 and 2031. BloombergNEF reports that the 14 largest publicly owned data center operators globally are projected to spend close to $750 billion in capital expenditures in 2026 alone, up from approximately $450 billion in 2025. The data center industry has become a behemoth in a shockingly short amount of time.
Against this backdrop of explosive growth, the data center sector presents a distinctive and rapidly evolving risk profile for directors, officers, and the companies they lead. This type of surge of economic growth driven by rapid investment in new technology is sometimes followed by market corrections, such as the “Dot-com bubble” that burst in the early 2000s. Even if there is no AI-bubble, if past is prologue, there will be winners and losers in the AI race, and leaders of companies with substantial investment or dependency on data center operations—whether directly or indirectly—should be thinking ahead about how to manage investment related exposures in this high-growth industry. Yet while substantial attention has been devoted to the property, construction, environmental, cyber, and political risks inherent in data center operations, the governance and securities liability exposure—and the directors and officers (“D&O”) insurance that responds to it—has received far less attention. This article examines the intersection of D&O insurance and the data center industry, highlighting emerging risks and offering practical guidance for companies, boards, and their insurance advisors.
Rapid Data Center Growth May Result in Greater D&O Exposure
The data center industry’s remarkable growth trajectory may create D&O exposure faster than many companies’ risk management frameworks can absorb. The pressure to meet AI-driven demand is compressing development and capital-raising timelines, increasing reliance on complex financing structures (like off-balance-sheet special purpose vehicles), and pushing companies to make aggressive forward-looking statements about capacity, revenue, and returns.
Historically, insurance programs for data center companies have been anchored around property and casualty coverage: builder’s risk for construction, property coverage for physical assets, and environmental liability for water and power consumption. These coverages remain critical, but they do not address the management liability exposure that accompanies the industry’s ever-growing financial complexity. The complex ecosystem around data centers—spanning engineering, construction, investment management, and executive decision-making—has already begun creating management liability and professional-lines exposures many insureds are only beginning to understand and may not have had the time or capacity to begin addressing.
The result is a protection gap: companies are scaling rapidly, making public representations about growth and capacity, and deploying billions of dollars in capital. Meanwhile their D&O insurance programs may not have been updated to reflect the heightened securities litigation, regulatory, and fiduciary duty / governance risks that accompany this growth.
Potential D&O Disputes Facing Data Center Companies
The data center industry’s explosive growth has already given rise to a wave of securities class actions and related litigation. The following examples illustrate types of claims that data center and data center-adjacent companies are facing:
- Stock-Drop Securities Class Actions – At least four AI-related data center securities class actions were filed during the first quarter of 2026. These cases share a common thread: plaintiffs allege that companies that capitalized on investor enthusiasm for artificial intelligence overstated their capabilities, understated material risks, or both, leading to allegedly significant shareholder losses. The suit against CoreWeave, Inc. (Case No. 2:26-cv-00355, D.N.J.) alleges overstated demand and understated reliance on a single third-party data center developer after a 350% post-IPO run-up reversed. The Fermi, Inc. suit (Case No. 1:26-cv-00050, S.D.N.Y.) alleges Securities Act and Exchange Act violations after a tenant termination caused shares to fall 59% below the company’s $757.7 million IPO price. The case against Oracle Corporation (Case No. 1:26-cv-00127, D. Del.) alleges misrepresentations that $50 billion in AI infrastructure spending would rapidly convert to revenue while the company reported negative free cash flow exceeding $10 billion. The Power Solutions International, Inc. lawsuit (Case No. 1:26-cv-03149, N.D. Ill.) alleges the company overstated margins on its data center pivot before an 8% gross margin decline triggered a nearly 29% stock drop. The complaints in these matters variously assert claims under Securities Act Sections 11 and 15 and Exchange Act Sections 10(b) and 20(a) and Rule 10b-5, with CoreWeave’s case notably combining both “AI-washing” (overstated capability) and “AI-risk” (understated risk) theories. These defendants span cloud computing, energy infrastructure, enterprise software, and industrial manufacturing, reflecting how broadly AI-driven investor enthusiasm has spread along with the corresponding litigation risk. The pace of these filings signals that plaintiffs’ firms view AI-related disclosure failures as a distinct and growing category of securities fraud claims.
- Other Potential D&O Exposure Categories: Beyond securities class actions, data center companies face additional categories of D&O risk:
- Derivative Suits: Shareholder derivative claims alleging that directors breached their fiduciary duties by approving excessive capital expenditures, failing to conduct adequate due diligence on construction partners, or making inadequate disclosures regarding project risks.
- Regulatory Investigations: As communities grapple with the impact of hyperscale infrastructure on electricity grids, water supplies, and local economies, executives face growing scrutiny from regulators, investors, and local governments. Formal enforcement actions can trigger D&O policy coverage; depending on the policy language, investigations may trigger coverage, too.
- Environmental and Permitting Litigation: Data center placement is increasingly contested. In one recent example, a data center developer in Imperial County, California filed a civil rights lawsuit against the city alleging a coordinated campaign of administrative obstruction that cost over 1,600 construction jobs and tens of millions in tax revenue, and a related suit under the California Environmental Quality Act (CEQA) was also filed. Environmental and permitting disputes can spill into board-level and regulatory-investigation exposure when a state environmental regulatory investigation acquiesces to local opposition.
Primer on D&O Insurance: Individual and Entity Coverage
D&O liability insurance is designed to protect corporate directors and officers against claims alleging wrongful acts in the management of the company. But most D&O insurance policies also protect the corporate entity itself against claims for wrongful acts. D&O policies are generally structured around three insuring agreements:
- Side A: Direct Coverage for Individual Directors and Officers – Side A covers individual directors and officers directly when the company cannot or will not indemnify them, e.g., due to insolvency or a legal prohibition on indemnification. Side A protects personal assets (homes, savings, investments) and typically carries no retention or deductible. This coverage is often considered the “coverage of last resort” for individual executives.
- Side B: Corporate Reimbursement Coverage – When the company does indemnify its directors and officers for covered claims, Side B reimburses the company for that indemnification expenditure (and is, therefore, often called “reimbursement coverage”). Side B is balance-sheet protection for the entity and is usually subject to a retention. Side B claims are historically the most common type of D&O claim. For example, a board member subject to a regulatory proceeding who is indemnified by the company for legal costs, with the company then seeking reimbursement from its D&O insurer.
- Side C: Entity Coverage – Side C protects the corporate entity itself when it is named as a defendant. Critically, the scope of Side C differs significantly depending on whether the policyholder is a public or private company:
- Public Companies: For publicly traded companies, Side C entity coverage is generally limited to securities claims, i.e., claims involving the purchase or sale of the company’s own securities, such as securities class actions alleging false or misleading disclosures under Sections 10(b) and 20(a) of the Securities Exchange Act and Rule 10b-5 or other types of common law securities claims.
- Private Companies: For privately held companies, Side C entity coverage is typically much broader, extending to a wide range of claims alleging “wrongful acts.” Sometimes claims as diverse as consumer class actions (such as deceptive advertising claims), privacy claims, product-related claims, and general commercial disputes may fall within a private company’s Side C D&O insuring agreement. However, private company D&O forms often carry additional exclusions not found in public company forms, that can meaningfully narrow the practical scope of coverage. Exclusions can vary significantly from one policy to another.
Key D&O Insurance Considerations for Data Center Companies
In forecasting potential risks, data center companies, their boards, and their insurance advisors should regularly review their D&O policies to ensure they have adequate coverage in place and to evaluate whether their policies will respond to emerging exposures:
- Definition of “Claim” and Subpoena/Investigation Coverage – The definition of “Claim” in a D&O policy for any company operating in a heavily regulated or politically sensitive sector like data centers must not be overlooked. Coverage under a D&O policy is typically triggered by a “Claim” alleging a “wrongful act.” Whether a regulatory subpoena or government investigation qualifies as a covered “Claim” turns on how the policy defines that term, and broader definitions may be better in this context. Data center companies face regulatory scrutiny from multiple angles, including energy regulators, environmental agencies, local planning authorities, and potentially the SEC. A D&O policy can be a valuable asset to mitigate the costs of responding to investigations and subpoenas. Policyholders should confirm whether their policy affirmatively covers investigation and subpoena response costs, whether the definition of “Claim” explicitly includes formal and informal regulatory investigations, whether the coverage extends to protect the company, and whether the definition of “Claim” is otherwise broad enough to capture such investigations, and, if so, whether the policy contains any sublimits that cap this coverage well below the policy’s overall limit.
- Prior Acts, Continuity, and Tail Coverage – The data center sector is characterized by rapid ownership changes. Assets are frequently built, financed, and flipped between PE sponsors, infrastructure funds, and public companies. Each ownership transition creates a potential coverage gap if tail (extended reporting period) coverage is not secured for the departing ownership period or prior acts coverage negotiated for the new ownership. Directors and officers who served during a prior ownership period rely on tail coverage to protect against claims filed after the transition alleging pre-transaction wrongful acts. Given the long gestation period of securities claims, which may be filed years after the alleged misstatement, ensuring seamless coverage for directors, regardless of when the claim is brought or the wrongful acts alleged to have occurred, is a critical consideration for any data center company undergoing a change of control, SPAC transaction, or IPO.
- Emerging Exclusions – D&O policies may contain AI-related exclusions or exclusions for bodily injury or property damage claims. Data center companies should review these exclusions carefully and work with their brokers and coverage counsel to obtain exceptions for securities litigation and D&O disputes.
- Alignment with Corporate Bylaws – Most D&O policies require companies to provide indemnification to current, future, and former directors and offices, and in some cases to key employees who may be covered “Insured Persons,” to the “fullest extent permissible by law.” Meanwhile, corporate bylaws may require the Company to purchase D&O insurance to cover corporate indemnification obligations. Many growth stage companies may not have reviewed their corporate bylaws recently to ensure alignment between the bylaws and D&O coverage programs, a task which can become more complicated following mergers and acquisitions, and create potential gaps in coverage in the event of a D&O claim.
The data center industry’s explosive growth fueled by trillions of dollars in AI-related capital expenditure is creating a new frontier of D&O liability exposure. Recent securities class actions against companies investing in and building data centers demonstrate that the litigation risk is not hypothetical; it is here and growing fast. Companies operating in or adjacent to the data center sector, and the investors backing them, must treat D&O insurance as a front-line risk management priority rather than a back-office afterthought. By carefully evaluating entity coverage scope, claim and investigation definitions, limit adequacy, tail coverage, and governance practices, boards and their advisors can position themselves to navigate the inevitable D&O disputes and securities litigation that will accompany this industry’s continued growth.