Measuring Business Interruption Losses and Other Commercial Damages, 3rd Edition

CHAPTER 8Business Valuations

In lawsuits where the business has been interrupted so significantly that it ceases to exist or where its value has changed significantly, the appropriate method to measure the loss may be to do a business valuation. The field of business valuations has grown dramatically over the past two decades. Numerous books have been written on the methodology of business valuation. In addition, many articles and periodic newsletters are available to keep experts aware of the latest developments in the field.¹ Therefore, this chapter provides only an overview of the methods involved; references in which readers can find a more expanded treatment of the topic are also included. The additional focus of this chapter is to show how business valuation methods can be applied in cases of business interruption.

Legal Standard for Business Valuations in Business Interruption and Business Failure Lawsuits

When a defendant damages a plaintiff to such an extent that the plaintiff’s business fails, the question arises: How should damages be valued? Given that the plaintiff has lost profits, should estimated past and projected future profits be the manner in which damages are measured? Abundant case law clearly states that the proper measure of damages is the value of the business, not projected profits. When this is the case, then the methodological approach to measure damages is different from in a typical business interruption case.

Numerous cases reiterate the court’s ...