Opinion ID: 1937963
Heading Depth: 1
Heading Rank: 2

Heading: Value of Insurance Agency

Text: At a hearing before the referee on the motion to vacate the judgment, Mary's expert, Nicholas Romer, testified that, in 1979, the insurance agency was worth between Sixty Thousand and No/100 Dollars ($60,000.00) and Ninety Thousand and No/100 Dollars ($90,000.00). Mr. Romer testified that service businesses are typically valued at three times the net profit or at gross sales. Mr. Romer based his estimate of the insurance agency's 1979 value on the gross income figure of Sixty Thousand and No/100 Dollars ($60,000.00) taken from the court's finding in the 1979 judgment and decree. At a hearing before the trial court, Professor Roger Palmer, Mary's second expert, testified that the 1979 value of the agency was between One Hundred Thousand and No/100 Dollars ($100,000.00) and One Hundred Fifty-one Thousand and No/100 Dollars ($151,000.00). Professor Palmer used three different methods to arrive at this range of values. In order to arrive at the $100,000 value, Professor Palmer used the sale price that Edward reported on his income tax return after he sold the agency to his brother in 1985. According to Edward's agreement with his brother, this amount was supposed to represent 50 percent of gross casualty insurance commissions over a 5-year period. The second method used by Professor Palmer was a standard insurance industry valuation of one and one-half times premium income. Using this method, Professor Palmer multiplied Ninety Thousand and No/100 Dollars ($90,000.00) by 1.5 to reach a value of One Hundred Thirty-five Thousand and No/100 Dollars ($135,000.00). The third method used by Professor Palmer was arrived at by determining the present value, as of March 1978, of 50 percent of gross agency income over the 5 subsequent years using a 15 percent growth rate factor. Using this method, Professor Palmer concluded that the agency's value in March of 1978 was One Hundred Fifty-one Thousand, One Hundred and No/100 Dollars ($151,100.00). Under cross-examination, Edward admitted that, for the 5-year period between 1978 and 1983, gross commissions were approximately Two Hundred Twenty-one Thousand and No/100 Dollars ($221,000.00). In her findings of fact dated February 10, 1988, the trial judge selected the One Hundred Thousand and No/100 Dollars ($100,000.00) figure as the 1979 value of the agency because it was amply supported by Edward's willingness to sell the agency at less than what he told banks it was worth and substantially less than the value determined according to the standard industry method of one and one-half times gross commissions.