In 2023, China introduced a number of significant revisions to its Company Law. Among other things, the revisions introduced a number corporate governance and liability reforms. According to a October 9, 2025 memo from the Hogan Lovells law firm, which can be found here, the legal reforms are among several factors contributing to “particularly sharp increases” in the number of D&O claims in China. According to the memo, these developments present D&O insurers with both “challenges and opportunities.”
On December 29, 2023, China’s National People’s Congress adopted a major overhaul of the country’s Company Law. The amendments took effect on July 1, 2024. The revised Law has broad applicability to both public companies and non-listed companies. The law institutes a number of capital-related requirements. Among other key revisions, the new law also tightens the liability standards for senior management.
According to the law firm memo, Articles 180 to 184 of the revised law define the duties of loyalty and diligence and “introduce more detailed restrictions on conduct such as related-party transactions, misuse of corporate opportunities, and conflicts of interest.”
Article 180 expressly defines the fiduciary duties of directors, supervisors, and senior executives, including a duty of loyalty and a duty of diligence. The revised provisions also impose joint and several liability on directors and senior officers for losses resulting from withdrawals, and improper profit distributions. The individuals may also be liable to third parties for damages for “gross negligence or intentional misconduct.”
The revisions also institute a dual derivative action mechanism, allowing shareholders with more than 1% of shares to initiate lawsuits against not only directors and officers of the company but also its wholly owned subsidiary. The changes are “expected to increase exposure to civil claims.”
Of key interest to readers of this blog, the revised law, in Article 193, explicitly endorses the use of D&O liability insurance, “a first for Chinese corporate legislation.” The legislation also expressly provides that when a company has purchased the insurance, the company’s board must disclose at shareholder’ meetings the amount, coverage scope, and premium rate of the insurance.
By strengthening director and officer duties, broadening board responsibilities, and enhancing regulatory tools, the amendments aim to build a “more transparent, responsible, and creditor-friendly business environment.”
The new changes have also contributed to an increase in the number of D&O claims. According to the law firm memo, several factors, including the recently enacted legal amendments, as well as the tightening of capital markets and corporate governance regulation has resulted in a sharp increase in the number of D&O claims in China.
The increase in the number of claims, together with the amendments’ express recognition of D&O insurance, has driven awareness of and interest in D&O Insurance among Chinese firms. These developments, according to the law firm memo, present “both challenges and opportunities for the insurance industry.”
The recent amendments, which are broadly applicable to all companies, may fuel increased interest in D&O insurance among small to medium companies and private enterprises. At the same time amendments’ expanded liability standards and the introduction of dual derivative actions “increases the likelihood of claims,” which in turn will put underwriting diligence pressure on the insurers.
Finally, the memo also notes that these recent developments “present an opportunity for insurers to offer governance-linked advisory services,” such as compliance training, risk assessments and policy audits.