Protection Against O-Zone Liability: Q&A with Lovitt & Touché’s Ryan Donahue

While Opportunity Zones can provide a decent return on investment, there is still a high possibility of tax liability. Ryan Donahue, Insurance Broker with Lovitt & Touché, a Marsh & McLennan Agency LLC Company, answers questions about the need for insurance when it comes to Qualified Opportunity Fund (QOF) investments, and why.

Q. First of all, with your company based in Arizona, can you tell me if there are state or public programs pairing with the Opportunity Zone programs to aid with development and investment in Arizona’s designated tracts?
A. The Opportunity Zone trends in Phoenix resemble the nationwide influx of capital into areas that were not otherwise getting similar investment. There are programs, such as those related to historic preservation, that can be paired with Opportunity Zone funds.

Q. Why is an insurance program needed for Opportunity Zone developments?
A. Qualified Opportunity Funds (QOFs) need a specialized insurance program, due to the tremendous tax liability with such projects. Lovitt & Touché’s Opportunity Zone Insurance Program (OZIP) was developed for QOFs, and provides fund investors with insurance for the tax liability in the event of recapture. Traditional errors and omissions (E&O) insurance specifically excludes insurability of tax consequences. We are filling that void with a policy that includes tax insurance on the E&O of a fund in the event of a successful challenge by the IRS. We have been partnering with the best attorneys in the space who understand the unique risks this legislation presents to develop this proprietary solution.

Q. What are the concerns you are finding among clients interested in investing in opportunity zone projects, and why are those concerns apparent?
A. The main concern for investors is the amount of capital that is at risk. We are not talking about small numbers when it comes to Opportunity Zones. Construction delays, tariffs, political footballs, market instability and climate change all pose potential threats to a QOF’s ability to stay in compliance with the law. Investors need to consider the possibility that the capital gains being invested into the fund are at risk. OZIP is there to provide the insurance to that risk; we see it as a way for fund differentiation for QOF’s that are looking to attract conservative investors.

Connect Opportunity Zones will be presented for the first time on Oct. 23 in New York. For more information, or to register, click here.

For comments, questions or concerns, please contact Amy Sorter