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A group of Dow Inc. investors filed a lawsuit at the end of August accusing the chemical manufacturer of failing to properly disclose the impact of tariffs on its business.

This is the first investor class action linked to President Donald Trump’s tariff onslaught that upended global trade, according to lawyers, forced companies to reevaluate entire supply chains and resulted in profit warnings across sectors. It probably won’t be the last.

As the impact of tariffs starts to feed through to companies’ results and share prices, more investors may say they’ve been deceived by overly upbeat messaging, exposing firms to potential litigation and prompting them to seek directors and officers liability coverage known as D&O insurance.

“I view the Dow case as an example of plaintiffs’ lawyers seizing on a stock price decline and working backward to claim that generalized statements were somehow misleading because they did not predict the future,” said Edmund Polubinski, partner at law firm Davis Polk & Wardwell.

Securities class actions tend to reflect predominant themes in the financial markets. During the Covid-19 pandemic, lawsuits were filed against companies for downplaying the impact of dwindling demand during lockdowns. More recently, lawyers have noticed an increase in filings related to cryptocurrency and artificial intelligence, with some being sued for “AI washing,” or misrepresenting their AI capabilities.

A few months into a whirlwind of changing tariffs and sudden trade deals, the litigation risk is growing.

For companies, this is a minefield. Beyond the financial impact of levies themselves, an uncertain environment can delay investments and damage consumer confidence. That hurts visibility and puts companies at greater risk of investors noticing a discrepancy between outlooks and actual performance.

“Plaintiff’s counsel are well versed in – and I’m being a little facetious here – taking advantage of these types of market disruptions and finding a hook to allege that a company did something wrong in the way that they managed it or communicated about it,” Kelly Thoerig, product leader in the Professional & Executive Risk division at insurance brokerage firm Lockton Inc., said in an interview.

That’s creating a new opportunity in the insurance market.

Wayne Imrie, head of London Market Wholesale Executive Risks at insurer Beazley Plc, has noticed an increase in interest from clients for relevant coverage. “In this current environment, you’re probably seeing demand at its highest level because there is so much uncertainty,” he said, referring to insurance coverage for directors and officers.

The first port of call for companies dealing with tariff-related allegations is D&O coverage, a type of liability insurance that protects directors, officers and other senior managers from personal financial losses and legal costs if they are accused of a “wrongful act.”

A side of D&O coverage that protects the company itself is less in demand, though its popularity may rise. “It’s rarely purchased, although let’s see whether we see renewed interest in that form of coverage given these new risks,” Lockton’s Thoerig said. “I suspect that may change.”

Alongside companies and shareholders, insurers will be at the forefront of this new development.

“What we are very keen to understand is, what are our clients telling the Street and how open and transparent are they being?” Imrie said. “And then, do the ongoing financial reports back up what was said, because if not, that’s when investors will be upset. They don’t like surprises.”

In Dow’s case, investors said the company blamed tariffs for disappointing second-quarter results and a lowering of the dividend, despite having previously said it was well positioned to weather the levies and could support shareholder returns. Plaintiffs are seeking damages after the share price slumped in reaction to second-quarter results.

“The plaintiffs’ bar will surely continue to try to capitalize on stock price declines by bringing securities cases,” Davis Polk’s Polubinski said. “Unfortunately, any company with exposure to tariffs will face the threat of cases like this.”

Plaintiffs’ lawyers will look back at the disclosure statements the companies have made, especially optimistic statements about the impact of the tariffs, the ability to source materials from low-tariff jurisdictions, and more disclosures or lack thereof, according to Kevin M. LaCroix, attorney and executive vice president of insurance intermediary RT ProExec.

“Although my crystal ball is no better than anyone else’s, I do think we will see more tariff-related securities class action lawsuits,” he said in an interview.

Photo: Dow Inc. headquarters in Midland, Michigan. Photographer: Sean Proctor/Bloomberg

Topics Lawsuits