Brokers arranging insurance for data center operators may need to give greater attention to directors’ and officers’ liability as billion-dollar investment decisions collide with regulatory change, higher energy costs and organized opposition to new developments.
Data centers have largely been discussed as property, construction and technology risks. However, the scale of the capital being committed also increases the consequences when projects are delayed, costs escalate or expected demand fails to materialize.
Anthony Manna (pictured), who leads Jencap Specialty’s Southeast financial lines department, said D&O can be overlooked despite the expectations placed on executives overseeing data center and artificial intelligence investments.
“What concerns me in the D&O space is that there’s massive capital investment, plus rapidly evolving regulations,” Manna told Insurance Business. “This creates a whole new level of responsibility for boards and directors and officers.”
The exposure could emerge through allegations that management made poorly supported capital-allocation decisions, failed to disclose material development risks or responded inadequately when the commercial or political environment changed. Those questions become more consequential when projects depend on long-term assumptions about energy availability, construction timelines, customer demand and government incentives.
The sums involved are increasing the pressure on management teams to demonstrate that projects remain commercially viable throughout lengthy planning and construction periods.
“These are not small investments,” Manna said. “There are hundreds of millions, if not billions, of dollars flowing into data centers and AI. Again, this puts a lot of pressure on the people running the company and making the decisions.”
Brokers reviewing D&O limits may need to consider the value of individual projects, the amount of debt or external investment involved and the financial consequences of delays. Investor expectations can also change quickly if a development loses access to power, encounters new restrictions or requires substantially more capital than originally forecast.
The scrutiny is no longer theoretical. S&P Global reported in January that 20 proposed US data center projects representing an estimated $100 billion of investment had been delayed or cancelled during one three-month period. It also identified at least 188 activist groups organizing around data center development nationwide.
Those figures could influence how D&O underwriters assess the governance behind proposed developments. A submission may need to explain how the board tests demand projections, monitors changing regulations and evaluates whether management has sufficient expertise to oversee unusually large infrastructure commitments.
Public resistance is increasingly affecting where operators deploy capital.
New York became the first US state to halt construction of large new data centers in July, imposing a one-year moratorium on facilities using at least 50 megawatts. The state cited concerns about utility bills, natural resources and the effect of development on local communities.
In Virginia, the world’s largest data center market, Dominion Energy’s fuel costs have risen 88% since 2021 as growing demand increases the utility’s reliance on wholesale electricity. Regulatory filings indicated that fuel expenses could raise the average residential bill by as much as 13%, intensifying arguments over whether households are absorbing costs generated by data center expansion.
“From a D&O perspective, we’re watching the public sentiment around data center development,” Manna said. “These projects require enormous amounts of capital, and they’re facing scrutiny for power consumption, water usage and environmental impact. This starts to become a board-level issue.”
Future insurance discussions may need to examine how management identifies local resistance before committing capital, what it communicates to investors about permitting and energy constraints, and whether changing assumptions are disclosed promptly.
“The negative sentiment isn’t the exposure. It comes from how management responds to it,” Manna said. “Are they going to ignore it? Are they going to disclose to investors what’s going on? What assumptions are they making when they deploy capital, and how do they address the requirements?”
Placement discussions may also need to address whether the D&O tower reflects the operator’s financing structure and whether policy terms respond adequately if a project dispute develops into shareholder litigation or regulatory scrutiny.
“We’re seeing the regulatory landscape evolve and change,” Manna said. “I think boards have to think about where they’re investing. If one state is a little more one-sided on it, maybe you need to look into developing a data center somewhere else.”
