Responding to requests by plaintiffs who are pursuing lawsuits against insurers for COVID-19-related business losses, the Judicial Panel on Multidistrict Litigation (JPML Panel) recently rejected two proposals for centralization. However, the panel was willing to entertain a proposal for insurer-specific consolidation.

Many COVID-19 business interruption actions follow the same pattern. A business owner files a claim for business interruption losses with the insurer, arguing a government order to shut down nonessential businesses caused the business to lose profits. The insurance company denies the claim, arguing there was no coverage under the individual policy because the owner failed to show physical damage to the property or the policy contained a virus (or other relevant) exclusion. The owner then files a lawsuit, arguing the insurer breached its contract and asking the court for a declaratory judgment.

As we reported, a Michigan court recently issued the first ruling in a COVID-19 business interruption case, finding against a restaurant owner who had tried to circumvent the policy’s physical damage requirement by arguing the shutdown caused a loss of the use of the property.

Too many different policies: With the proliferation of cases nationwide, a number of plaintiffs asked the JPML to centralize the litigation. The initial proposal was to create an “industrywide” multidistrict litigation (MDL), but more recent proposals asked for consolidation on a state-by-state, regional, or insurer-by-insurer basis.

The plaintiffs’ argument for centralization was there were three common questions: (1) whether the government orders triggered coverage under the policies; (2) what constituted “physical loss or damage” to the property; and (3) whether exclusions (particularly virus exclusions) applied. The defendant insurers or insurer groups responding to the motions uniformly opposed centralization.

In its Aug. 12, 2020, order, the JPML rejected industrywide centralization, noting the so-called common questions “share[d] only a superficial commonality.” There was no common defendant, and there was little common discovery across the litigation, the panel said. Importantly, all cases involve different insurance policies with different language, different coverage, and different exclusions. “These differences will overwhelm any common factual questions,” the panel said. It also pointed to the difficulty for “any jurist” to manage this type of litigation. Implementing a pretrial structure that produces efficient adjudication would take time, which many businesses on the brink of bankruptcy did not have, the panel noted.

The panel said proposals for regional or state-based MDLs came with similar problems.

Insurer-specific approach may work: But the panel found arguments for insurer-specific MDLs more persuasive. It noted this litigation would be limited to a single insurer or insurance group and also would more likely involve policies with the same language. The actions likely could share discovery, the panel noted.

However, the panel said it was not ready at this time to create such an MDL because the insurer-specific proposal was made late and not fully briefed. The panel asked the clerk of the panel to issue orders regarding suits involving four insurers to show cause why these individual suits should not be centralized. A hearing on this matter is scheduled for September 24.

As for litigation involving other, nonnamed insurers, the panel said there were alternatives for litigants, including informal cooperation and coordination of the actions, to avoid duplication in pretrial proceedings.

The four insurers named in the order are: Certain Underwriters of Lloyd’s, London; Cincinnati Insurance Co.; The Hartford insurers; and Society Insurance.

Cash-starved localities may inflate ad valorem tax valuations

The pandemic has hit local governments hard financially, and they may look to ad valorem taxes on industrial and commercial properties to replenish their coffers. Sometimes, assessors improperly inflate ad valorem property tax bills by including the value of the taxpayer’s intangible assets, which are not subject to property taxes in some jurisdictions. The summer 2020 Insights from Willamette Management Associates has a number of articles on this, including “The Identification and Extraction of Intangible Property From Unit Principle Valuations” (Tia Hutton and John C. Ramirez). The entire issue is devoted to property tax planning, compliance, and appeals.

Practice op: Examine your local area to see whether the laws exempt certain intangible assets from commercial property taxes. You may have clients who have overpaid their property taxes if the value of intangibles was improperly included in the assessment.

MoneySoft BV software now integrated
with DealStats

The new version of the MoneySoft Business Valuation Specialist software now allows users to import data from BVR’s DealStats database of private- and public-company transaction comparables. Users of the software need a subscription to DealStats to access the data. This new feature eliminates the time and hassle of manually entering data used into the software program (over 20 fields for up to 100 transactions). MoneySoft originally developed Business Valuation Specialist in collaboration with Practitioners Publishing Co. to conform to its three-volume Guide to Business Valuations.

TAF seeks members for BV panel

The Appraisal Foundation (TAF) is accepting applications from volunteers to serve on its Business Valuation Resource Panel (BVRP). The purpose of the BVRP is to oversee the development of business valuation advisories, provide input on exposure drafts, and offer insight into emerging issues or other matters of like significance. The panelists will serve staggered terms commencing Jan. 1, 2021, for up to three years. Completed applications must be received by September 11. For an application, click here.

ASA seeks donations for fundraising auction

To kick off its Annual International Conference, the American Society of Appraisers is looking for donations for an online auction to raise funds for ASA’s Educational Foundation, which gives course-taking grants to up-and-coming young appraisers. For more information and a donation form (due August 26), click here.

Virtual Divorce Conference offers 1:1
video networking

Want to connect one-on-one with a valuation expert or attorney specializing in divorce matters? You’ll be able to do so during the AAML/BVR Virtual Divorce Conference, which begins September 9. At the end of each day, a special session will be devoted to online speed networking. You’ll be matched up for a series of short video conversations so you can share ideas, give and get feedback, and help one another manage the challenges of divorce engagements during these trying times. You’ll also build some new relationships. The full agenda and more information is available if you click here.

Extra: Mark your calendar for an August 27 free webinar designed as a lightning round of observations and advice about divorce valuations in today’s challenging environment.

BVFLS conference in Virginia September 19-20

Last year, BVWire attended the Business Valuation, Fraud & Litigation Services Conference sponsored by the Virginia Society of CPAs (see some prior coverage here). This year’s event will be held solely online September 16-17, and it has another high-quality agenda of speakers and topics ranging from valuation reporting and courtroom communication to estate/gift tax laws and economic loss (and how COVID-19 is affecting these areas). Given the tough economic times, the VSCPA is offering a 20% discount over last year’s rate. For the full agenda and to register, click here.

iiBV ramps up BV certification courses online

Valuation practitioners in Chile, Europe, and India recently completed the online delivery via Zoom of iiBV 103 (Case Study) offered by the International Institute of Business Valuers (iiBV). This course is part of the iiBV’s core courses developed for the international market that lead to business valuation designations, including those offered by the American Society of Appraisers and CBV Institute (the Canadian valuation professional organization). The instructor for the recently held course was Zvonimir Petrovic, who was based in Belgrade. He welcomed guest instructors Andrew Strickland (London, UK) to present on Black-Scholes and John Barton (Philadelphia, US) to present on rules of thumb. Student feedback from the course was just as high as it was for the in-class course delivery, the iiBV said in a statement.

Preview of the September 2020 issue of Business Valuation Update

Here’s what you’ll see:

• “Reopen or Not? A Method for Analyzing a COVID-19-Shuttered Firm” (Amanda Sayn, CPA, and David Shindel, CPA, MAFF, CVA, ShindelRock). A case study of using external yardstick data to help a client decide whether to hang in there and reopen his or her business or stay closed for good. This is not a full-blown valuation engagement but rather a very high-level analysis designed to provide management with an objective basis to help make critical decisions in today’s unpredictable environment.

• “How COVID-19 Is Impacting the IRS and Valuation Audits” (BVR Editor). Still reeling from the effects of the government shutdown and budget cutbacks, the pandemic has dealt another blow to the IRS that has affected how the agency selects and reviews tax returns that include valuations. A former IRS manager who dealt with valuations at the agency gives some interesting insights.

• “Amid Market Data Volatility, the Best Option Is a More Rigorous DCF” (BVR Editor). Comments from a panel of global valuation experts who conducted a recent webinar co-sponsored by RICS, and also NACVA, the ASA, GACVA, and CBVI.

• “Latest Study Available for the Empirical Method for Determining DLOM” (BVR Editor). The 2020 Discount for Lack of Marketability (DLOM) Study, recently released by Partnership Profiles, offers objective rate-of-return measures to implement the Johnson/Park empirical method. This method uses three approaches to measure the increase in return required to compensate investors for the lack of marketability of a subject interest.

• “Seasoned Valuers Urge Up-and-Coming Practitioners to Specialize” (BVR Editor). Insights from veteran valuation experts on how to develop a specialty, which they see as essential for the future of the business valuation profession.

• “Time to Take a Fresh Look at the Use of Transaction Databases” (BVR Editor). This is an adaptation of an article contained in the new fourth edition of The Comprehensive Guide to the Use and Application of Transaction Databases.

The issue also includes:

• An expanded section of “BV News and Trends/Global BV News and Trends.”

• Regular features: “Ask the Experts” and “Tip of the Month.”

• BV data spotlight: “DealStats MVIC/EBITDA Trends,” “FactSet Mergerstat/BVR Control Premium Study,” “Economic Outlook for the Month,” and the “Cost of Capital Center.”

• BVLaw Case Update: The latest court cases that involve business valuation issues.

To stay current on business valuation, check out the September 2020 issue of Business Valuation Update.

BV movers . . .

People: Trisch Garthoeffner, ABV, CVA, MAFF, EA, MAcc, founder and president of Anchor Business Valuations & Financial Services LLC (Naples, Fla.), has been named to the Standards Board of the National Association of Certified Valuators and Analysts (NACVA) … Ryan Campbell, CPA, CGMA, CVA, has joined the Pensacola, Fla., office of Anglin Reichmann Armstrong as partner in charge; he has expertise in key industries that Anglin serves, including manufacturing, construction, government contracting, healthcare, and real estate … Avinash (Avi) S. Tukrel will lead the new transfer pricing practice at Canadian firm Segal LLP; he has over 14 years of international transfer pricing experience in Canada, the UK, Malaysia, Australia, and India … Marc Panucci, deputy chief accountant at the Securities and Exchange Commission, plans to leave the agency in late August; he was appointed to the position in 2016.

Firms: Chicago-based Baker Tilly and Irvine, Calif.-based Squar Milner will merge as Baker Tilly US effective on November 1; the combined workforce totals almost 4,300 … Enterprise, Ala.-based Carr Riggs & Ingram (CRI) has acquired the Cookeville, Tenn., office of Duncan Wheeler & Wilkinson … PKF International has announced the addition of a new member of the association, The Doty Group (Tacoma, Wash.); the firm provides litigation and valuation, tax, audit and accounting services.

Please send your professional and firm news to us at editor@bvresources.com.

CPE events

• Valuation of Inventory: Taking Stock of the Guidance. August 20, 10:00 a.m.-11:40 a.m. PT/1:00 p.m.-2:40 p.m. ET. Featuring: Anthony J. Pumphrey (Valuation Research Corp.). Part of BVR’s Special Series on Fair Value.

Given divergences in both practice and guidance, inventory valuation can seem challenging. This webinar illustrates simple, straightforward modifications to the valuation of inventory that you can incorporate into your valuation process.

• Excelling in Litigation and Dispute-Related Valuations: How to Not Get Caught Bringing a Knife to a Gunfight. August 25, 10:00 a.m.-11:40 a.m. PT/1:00 p.m.-2:40 p.m. ET. Featuring: Sean Saari (Marcum LLP) and Bob Ranallo (Marcum LLP).

How to prepare yourself, and your valuation report, when you know your work will be subject to review and critique in a litigation or dispute setting will be discussed.