$1,000,000 DEI Insurance Problem

The $10,000 Workplace Problem That Turns Into a $1,000,000 Lawsuit

For International Women's Day I sat down with Kit Chaskin and Lauren Golanty from Third to First for a conversation on the Inclusionism podcast about a novel insurance solution to an work place conflict problem that we have quietly lived with for decades: learn how we disincentivize workplace conflict.

Their company builds tools that allow organizations to intervene earlier when workplace problems arise—before those problems escalate into lawsuits. At first glance that might sound like a simple HR innovation. But the more we talked, the clearer it became that this is actually about something much bigger.

It is about a structural flaw in the way Employment Practices Liability Insurance works.

To understand that flaw, it helps to start with a simple story.

A workplace lawsuit rarely begins in a courtroom. It usually begins with a moment that feels small at the time. An employee raises a concern. A manager dismisses it. HR documents the issue but decides it isn’t serious enough to escalate. Weeks pass. The problem festers.

Months later the company receives a letter from a lawyer.

At that point the organization calls its insurance company.

But by then the problem has already become expensive.

The Three Parties in Workplace Liability

Every liability insurance policy has three parties.

The first party is the organization that purchases the insurance policy. In the case of

Employment Practices Liability Insurance, that is the employer.

The second party is the insurance carrier providing coverage.

The third party is the person claiming harm. In workplace liability cases, that is typically an employee bringing claims related to discrimination, harassment, retaliation, or wrongful termination.

EPLI is structured as a third-party liability policy, which means insurance coverage activates only when the third party—the employee—files a claim against the first party—the employer.

In other words, the insurance system only turns on after workplace conflict becomes a legal dispute.

That structure creates a strange incentive. The system is designed to respond after the conflict has already escalated, not before.

The Hidden Math of Workplace Risk

Many executives assume employment lawsuits are rare events. Insurance data suggests otherwise.

Across the U.S. workforce, insurers often estimate the probability that an employee files some form of employment-related complaint each year at roughly half a percent to one percent of the workforce. It sounds small until you apply it to a real organization.

A company with 1,000 employees can expect roughly five to ten complaints per year.

A company with 5,000 employees may see twenty-five to fifty complaints annually.

At 10,000 employees, the number can exceed fifty or even one hundred workplace complaints in a single year.

Most of these issues are resolved internally. Some move through regulators like the EEOC, which receives about 70,000 employment discrimination charges every year in the United States. Only a fraction ultimately become lawsuits.

But the ones that do become extremely expensive.

The Cost Curve of Workplace Litigation

By the time an employee becomes a legal adversary, the financial exposure increases dramatically.

Defense costs alone frequently exceed $200,000, even when a company wins the case. Settlements often average between $75,000 and $125,000, while jury verdicts can reach $500,000 to $1 million.

Large verdicts—sometimes called “nuclear verdicts”—can exceed $5 million, and occasionally much more.

When you add internal disruption, leadership distraction, turnover, and reputational damage, the real cost of a major employment dispute often reaches $1 million to $2 million or more. All of that usually begins with a workplace problem that might have been solved much earlier.

The $10,000 Decision

This is where the conversation with the Third to First team becomes interesting.

Their idea is straightforward: instead of waiting until an employee becomes a third-party legal claimant, organizations should treat workplace conflict as a first-party operational risk.

In insurance language, that means shifting the focus from litigation to prevention.

If a workplace issue is addressed early—through mediation, investigation, or corrective action—the cost is often relatively modest. In many cases it falls somewhere between $10,000 and $50,000, depending on the size of the company and the complexity of the issue.

If the same conflict escalates into litigation, the cost can quickly reach $300,000 to $1 million or more.

Preventing just one lawsuit can save hundreds of thousands of dollars.

For large organizations employing thousands of people, preventing several claims per year can represent millions in avoided losses.

The Balance Sheet Most Companies Ignore

This matters even more today because modern companies are no longer dominated by physical assets.

More than 90 percent of the value of companies in the S&P 500 now comes from intangible assets: human capital, intellectual property, brand trust, and organizational culture.

When workplace systems fail, companies do not just pay legal settlements. They lose talent. They lose institutional knowledge. They lose reputation.

In other words, they damage the very assets that drive their long-term value.

For decades the insurance industry has quietly paid for the consequences of workplace failures. Employment Practices Liability Insurance exists largely because organizations sometimes fail to manage people risk effectively.

But what the Third to First approach suggests is that the real opportunity may not be in paying those claims.

It may be in preventing them.

If workplace conflict can be addressed before employees become legal adversaries, insurance stops functioning purely as a financial backstop. It becomes part of a system that encourages organizations to fix problems before they turn into million-dollar disputes.

That shift—from reacting to lawsuits to preventing them—may end up being one of the most important changes in how companies manage workplace risk in the coming decade.