BVR Logo July 29, 2020 | Issue #214-4

BVWire is your go-to source for the latest in the business valuation profession. Highlights for this week include:

Michigan court decides COVID-19 business interruption claim; many more cases in the pipeline

COVID-19-related business interruption cases are winding their way through the court system, and one state court, in a matter of first impression, recently issued a decision. A Michigan court dismissed a restaurant owner’s suit against the insurance company that had denied coverage after he argued after he argued the state government’s COVID-19-related mandated shutdown had caused him to lose the use of his property and by extension profits.

Meanwhile, plaintiffs across the nation have initiated lawsuits against insurers for COVID-19-related losses and are seeking to consolidate their actions. The cases are before the Judicial Panel on Multidistrict Litigation (JPML) and are awaiting a hearing on July 30 and a decision to follow.

Michigan court’s dismissal: A business interruption claim is a contract dispute that hinges on the language in the individual contract, i.e., insurance policy. Generally speaking, to qualify for business interruption damages, a business owner must show physical damage to the property. This was the crux in the Michigan case. The restaurant owner’s policy expressly required “direct physical loss of or damage to the property.” The insured owner could not meet the physical loss requirement but tried to circumvent it by arguing the governor’s stay-at-home order interfered with his use of the property. The court rejected this argument. Adopting the owner’s position would mean reading words into the insurance policy that are not there, the court noted. Under the traditional rules of contract interpretation, courts do not rewrite a contract when the language in the contract is unambiguous. The insurance company prevailed because the plaintiff failed to show that COVID-19 actually damaged the physical integrity of the property, the court found.

The case, Gavrilides Management Company v. Michigan Ins. Co., was first reported in The National Law Review (NLR), which provides a link to the court’s virtual hearing on the insurer’s motion to dismiss. The NLR says this represents the “first substantive dispositive ruling on a Covid-19 business interruption claim.”

Over 140 cases nationwide: Our research shows that COVID-19-related cases are in various stages of adjudication. For example, a plaintiff owning a dentistry practice in Seattle that was shut down under government-ordered mandates filed a claim with his insurer for recovery of business interruption losses and was denied coverage. On April 30, the plaintiff filed a class action seeking a declaratory judgment and damages for breach of contract against the insurer. In granting the plaintiff’s recent motion for a stay in the case until the JPML rules on consolidation and transfer of cases, the court noted that there were over 140 similar cases nationwide, with more than 20 in the Western District of Washington. See Germack v. Dentists Ins. Co., 2020 U.S. Dist. LEXIS 119099 (July 7, 2020).

Also, a day care center in Kentucky filed for business interruption damages after the state government ordered licensed childcare centers closed on March 18 because of COVID-19. The insurer, West Bend Mutual Insurance Co., a Wisconsin company, denied the claim. In a letter of denial, the insurer, citing language in the policy addressing communicable disease-related forced shutdowns, said there were “two essential elements” the insurance holder had to satisfy: (1) “there must be a shutdown or suspension of business ordered by a local, state, or federal board of health or similar governmental board that has jurisdiction over your operations;” and (2) “the shutdown or suspension must be due to an outbreak of a communicable disease at the insured premises.” (emphasis in original) The insurer said the day care center had failed to satisfy the second element; at the same time, the insurer said that “one or both elements required for coverage to be afforded have not been triggered.”

The day care center challenged the denial of business interruption damages in state court, but the defendant succeeded in removing the case to federal district court. In a recent ruling on venue, the federal court found for the plaintiff and remanded the case back to state court. See ABC Daycare & Learning Cir. v. W. Bend. Mut. Ins. Co., 2020 U.S. LEXIS 114191 (June 29, 2020).

Stay tuned for more reporting on the courts’ decisions as they come down.

Participants needed for A/E firm valuation study

Rusk O’Brien Gido + Partners is collecting transactional data on the architecture, engineering, and environmental consulting industries (A/E firms) for its A/E Business Valuation and M&A Transaction Study, 8th edition. The study includes data from distinct stock transactions along with supplemental data from publicly available sources and is the most comprehensive and reliable study of its kind for this industry. If you participate in the survey, you will get $200 off the $399 study price. To complete the survey, which will take around 25 minutes to complete, click here.

Valuations for divorce: That was then, this is now (Part 2)

It’s a whole new ballgame for valuations in the context of marital dissolution, which is why the AAML/BVR Virtual Divorce Conference will focus on the most important issues impacted by all of the recent changes. For example:

Then: At last year’s conference, Michelle Gallagher (Adamy Valuations) was a co-speaker at several sessions on the Tax Cuts and Jobs Act (TCJA), which created quite a challenge for experts in a family law context.

Now: Today, business valuation experts must deal with a triple whammy—not only the ongoing impacts of the TCJA, but also the unprecedented impacts of COVID-19 as well as new government relief programs, which have triggered a lot of questions and uncertainties. For example, how are Payroll Protection Plan loans being handled for valuation purposes? “We are asking for the PPP loan application calculations and asking management to prepare a forecast of the loan forgiveness amount,” says Gallagher. “Based on when their PPP loan was funded and management’s forecast, we are modeling the cash flow impact as best we can.”

Gallagher will co-present a two-part session, To Sum It Up: How Tax Issues, Government Programs and COVID-19 Have Impacted Business Value, along with valuation expert Don DeGrazia (Gold Gerstein Group LLC) and attorney Brian Vertz (Pollock Begg Komar Glasser & Vertz LLC). Part 1 will be on September 10, and Part 2 will be on September 11. The conference begins September 9 with a multiday schedule designed to fully respect your workday obligations. To check out the full agenda, click here. See you there!

A sad note …

All of us at BVR are deeply saddened to share the news of the unexpected passing recently of Denise M. Frey, a founding partner of Israel Frey Group LLP in San Rafael, Calif. She was a CPA and was accredited in business valuation (ABV) and certified in financial forensics (CFF). She gave back to the profession through volunteering with the California Society of CPAs, developing standards and practice aids, presenting sessions on business valuation topics, and writing articles. “Denise was all about helping people,” says Ted Israel, also a founding partner at Israel Frey Group LLP. Therefore, in lieu of flowers, please donate to any local food bank. If you’re in the San Rafael area (Marin County), the local food bank is Extra Food. Acknowledgments of donations can be sent to Denise’s sister: Jeane Copeland, 412 Jacquelyn Lane, Petaluma, CA 94952.

ASA comments on SEC’s proposed rule on fair value

In a letter to the SEC, the American Society of Appraisers (ASA) voiced its general support for a proposed rule that harmonizes existing fund valuation guidance and clarifies what is expected from boards and advisors when a market quotation is not readily available. According to the proposed rule, the SEC has not updated fund valuation practices under the Investment Company Act since 1970. The proposed rule will update the framework and understanding to the SEC that boards and advisors should consult with a valuation specialist when in need of fair value determinations for hard-to-value assets.

Extra: The ASA has adopted a new governance model designed to enable its board of governors to focus on organizational vision and strategy and the CEO and staff to focus on operational issues.

AICPA weighs in on next federal COVID-19 relief

In a letter to Congressional leadership, the AICPA made six recommendations for the next phase of relief for small business and the U.S. workforce. One is to clarify that the receipt and forgiveness of coronavirus assistance through the Paycheck Protection Program (PPP) does not affect the deductibility of ordinary business expenses. The AICPA also recommends that future relief:

  • Provides information and tools to further simplify the PPP loan forgiveness application process;
  • Removes unnecessary and unfair tax obstacles to remote work;
  • Allows Section 501(c)(6) associations and organizations to access PPP; and
  • Provides additional federal fiscal relief to state and local governments.

At the time of this writing, President Trump and Congress have yet to agree to a new aid package.

ASB public meeting on USPAP July 31

The Appraisal Foundation’s Appraisal Standards Board (ASB) will hold a public meeting via Zoom to discuss the second exposure draft of proposed changes to the 2022-2023 USPAP on July 31, at 1:00 p.m. EST/10:00 a.m. PST. There will be a public comment period at the end of the meeting for attendees to share their thoughts on the second exposure draft with board members. To register, click here.

Pretransaction PPAs increasing in GCC region, says Deloitte report

The growing importance of intangible assets has triggered an increased number of stakeholders from within the Gulf Cooperation Council (GCC) requesting a pretransaction purchase price allocation analysis, according to a new report from Deloitte Middle East in collaboration with the Saudi Authority for Accredited Valuers (TAQEEM). “That is a clear indication that investors are interested to know beforehand what they are paying for and in understanding the value of the intangibles in their target companies,” Mohammad Araj, director, financial advisory, Deloitte Middle East and accredited member of TAQEEM, says in the report. “This would provide a justification for any premium paid over and above the proposed purchase price.” The report, “The Future of Intangible Assets in the Kingdom of Saudi Arabia,” focuses on intangible assets and their increasing contribution toward the value composition of businesses whether measured in terms of market capitalization or as part of premiums paid over net tangible assets. To download the report, click here.

BV movers . . .

People: Geoffrey Curran, CPA/ABV, CFA, CFP, has been promoted to principal at Merriman Wealth Management LLC; the firm has offices in Washington (Seattle and Spokane) and Oregon (Eugene) … Lindsay Shipman, CPA, CFA, has joined Fort Worth, Texas-based Whitley Penn as a forensic, litigation, and valuation services director in the firm’s Austin office … Andrew Carey has joined Grand Rapids, Mich.-based Adamy Valuation as a business valuation analyst; he is a recent graduate of Grand Valley State University (GVSU) who interned with the firm.

Firms: CPAmerica, an association of independent CPA firms and a member of Crowe Global, has named Transition Advisors LLC as a preferred consultant for the association; the firm advises managing partners who are actively pursuing growth and succession strategies, including expert advice on mergers and acquisitions … Under a five-year agreement, Atlanta-based Aprio LLP will provide technical guidance, support, and access to a range of specialty services to the members of CPAsNET, an accounting and business consulting association; services will include R&D tax credits, state and local tax, cybersecurity, and international tax … San Ramon, Calif.-based Armanino LLP has launched a new COVID-19 Return-to-Work App designed to help organizations safely navigate the reopening of their workplaces … CST Group (Reston, Va.) has created a new outsourced accounting company, District Advisory, to help clients with day-to-day accounting, CFO oversight, financial modeling, forecasting, and strategy … Chicago-based BDO USA is adding Denver-based IPA 200 firm ACM LLP in a deal expected to close on August 1; ACM has been a member of the BDO Alliance since 2002 and was a part of BDO prior to that; BDO will add 167 professionals from ACM and will maintain the firm’s four existing offices (three in Colorado—Denver, Northern Colorado, and Boulder—and one in Laramie, Wyo.).

Please send your professional and firm news to us at

CPE events

  • Fair Value Measurements Amid the COVID-19 Crisis. July 29, 10:00 a.m.-11:40 a.m. PT/1:00 p.m.-2:40 p.m. ET. Featuring: Brad Taylor (Marcum) and Nicholas Parseghian (Marcum). Part of BVR’s Special Series on Fair Value.

    The disruption to global economic activity and financial markets suggest that a business-as-usual approach may no longer apply to fair value measurements. Consequently, reporting entities can expect fair value measurements to receive greater scrutiny from their auditors and a heighted level of audit documentation.

  • 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.

We welcome your feedback and comments. Contact Andy Dzamba (Executive Editor) or Sylvia Golden, Esq. (Executive Legal Editor) at:


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