A recent Adam Smith, Esq. column raises the critical question around “good enough” cost-limited legal work: What happens when something goes wrong?

He titles it The Coming Debate Over Defining “Quality.” I think it’s a debate the industry needs to have, and isn’t having yet. Indeed, we discussed this question in my recent Master Class on Legal Project Management; I expect it to come up more often.

I started to comment on his post, and then ran into a technical glitch. Thus I’ll comment over here instead.

Any business decision contains risk, and good decision-makers build risk premiums into the overall cost analysis. Why is it not reasonable to sign a work agreement in the legal arena recognizing and accepting risk? We do it everywhere else.

The Earthquake Model

For example, my home insurance excludes earthquake damage. Both the insurer and I recognize the limits of the coverage. Because I live in an earthquake zone, I can — and do — choose to purchase separate earthquake coverage.

Earthquake coverage in Seattle is seemingly expensive, even with a big deductible. To me, that makes sense; we don’t know enough about earthquakes in Seattle to establish probabilities of occurrence and of damage.*

Translating Business Experience to the Legal World

Agreements to engage legal services are negotiations between two highly competent and knowledgeable parties. Why can’t they include a definition of “good enough” that makes clear the quid pro quo of less money/less depth?

Is there enough legal history to establish probabilities of damage? I don’t know; it likely depends on the area under consideration. That said, every business deals with unpredictable risks all the time; they make reasonable assumptions, usually with a lot of input and varied thinking, and then move forward. They’re not paralyzed by risk, nor do they ignore it.

The buy/sell system usually works to find a balance between what a purchaser is willing to pay — their level of risk tolerance — and what the supplier is willing to risk. That’s what happens when I contract for earthquake insurance, for example. If we can do that in a field where negotiation is seriously asymmetrical — I basically have a take-it-or-leave-it option rather than serious pricing power — then attorneys and corporate clients, with reasonably equal footing, should be able to do it.

To be sure, I’m coming at this from a business (economics) background rather than a legal background. But then the client is also coming from a business background… and running the firm is a business, too.

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*We have plenty of empirical evidence that my house isn’t in grave danger from our typical once-every-30-years earthquakes. These are magnitude 7 but slow, rolling quakes, unlike magnitude-7 quakes in California. Masonry comes down and stuff crashes off shelves, but there’s not a lot of structure damage to either modern buildings or wood-frame homes. (The exception is our downtown waterfront, which is protected by an aging, deteriorating seawall and where the outmoded-but-still-used double-deck viaduct is in real danger of collapse in another magnitude-7 quake.)

On the other hand, Seattle is also at risk of magnitude-9 quakes, similar to the big Anchorage quake 50 years ago. Not only is a magnitude-9 quake 100 times as powerful as a magnitude-7 temblor, but it’s believed this type of quake would start with a sudden unimaginable jolt rather than a rolling wave. We know from studies and various records that Seattle had such a quake 310 years ago, and a section of land about four miles from my house subsided about 25 feet. (See the Anchorage picture for an example.) I suspect my 100-year-old house would sustain serious damage, even though it’s anchored to the foundation and such. The problem is that we don’t know for sure; we don’t know how often these monster quakes occur here; and we don’t know that they’re all magnitude 9 because we’re not even sure which particular fault is most likely to shift. So there’s no way an insurance company — or a purchaser — can truly set values.