How to Get Overhead and Profit From Insurance

Property damage can be a disruptive event. When filing an insurance claim, understanding all components of a potential settlement is key. Overhead and Profit (O&P) is a frequently misunderstood element, representing a legitimate cost in complex repair or reconstruction claims. This article clarifies O&P’s role in the insurance claims process, helping policyholders navigate their recovery.

Understanding Overhead and Profit in Property Claims

Overhead and Profit (O&P) refers to additional costs insurance companies may cover when property repairs or rebuilding involve a general contractor. These costs are standard in construction for managing extensive projects. O&P is generally expressed as a percentage of the total construction cost, often around 20% in the insurance industry, typically split as 10% for overhead and 10% for profit.

Overhead encompasses the indirect costs a general contractor incurs to operate their business. These expenses include general and administrative costs such as office rent, utilities, office supplies, salaries, benefits, depreciation, licenses, and advertising. Covering these operational expenses is essential for maintaining a functioning business and supporting multiple projects.

Profit represents the contractor’s margin for undertaking work, compensating them for their expertise and the financial risks assumed. This component allows contractors to reinvest in their business, expand operations, and maintain quality standards. Both overhead and profit are recognized as necessary for a general contractor to remain financially stable and provide quality services.

Determining Eligibility for Overhead and Profit

The inclusion of Overhead and Profit (O&P) in a property insurance claim depends on the damage’s complexity and scope. Insurers generally recognize O&P when repair work necessitates a general contractor to manage and coordinate the project. This applies when a policyholder cannot reasonably oversee repairs due to the project’s scale or intricacy.

Insurers often use the “three-trade rule,” though it is not a strict legal rule in all states. This informal rule suggests a general contractor is likely necessary if a repair project requires three or more distinct trades (such as plumbing, electrical, and carpentry). Coordinating multiple specialized trades requires professional oversight for efficient sequencing, scheduling, and project management.

O&P is generally applicable when the general contractor is responsible for hiring and supervising subcontractors, researching zoning requirements, obtaining permits, and taking on overall project liability. While some insurers may initially resist paying O&P, especially if the policyholder acts as their own general contractor, industry practice supports its inclusion when a general contractor’s services are reasonably needed. O&P is considered a legitimate cost of business for a contractor, ensuring property restoration.

Preparing Your Overhead and Profit Claim

Securing Overhead and Profit (O&P) in an insurance claim requires detailed documentation and comprehensive estimates. Meticulously document all project-related expenses, including invoices, receipts, and payroll records. This thorough record-keeping substantiates the claim and provides evidence of O&P’s necessity.

Qualified contractor estimates are essential for delineating the scope of work and reflecting O&P. These estimates should be itemized, comprehensive, and transparent, outlining costs for materials, labor, overhead, and profit. A detailed breakdown helps the adjuster understand the request and how overall project costs were determined. Using estimating software like Xactimate, familiar to many adjusters, helps ensure estimates align with industry standards.

Include specific details regarding the project’s complexity that necessitate general contractor oversight. This can involve explaining the coordination required for multiple trades, the need for specific permits, or unique repair challenges. Photographs, videos, and a precise layout or scope of work can further support estimated costs and the need for O&P. Present a well-organized, comprehensive estimate document that clearly justifies all claimed costs, including O&P, to the insurance company.

Submitting and Communicating Your Overhead and Profit Claim

Once O&P claim documentation and estimates are prepared, formally submit them and communicate effectively with the insurance adjuster. The complete estimate package, including all supporting documents, should be submitted to the insurance company. This can be done through online portals, email, or direct mail, depending on the insurer’s preferred process.

Following submission, maintain proactive and consistent communication with the insurance adjuster. Be prepared to answer questions and provide further supporting documents, as adjusters often scrutinize O&P claims. Providing additional clarification or evidence of industry standards can strengthen the claim. Building rapport can facilitate a smoother negotiation process, potentially leading to a more favorable resolution.

While the insurance company assigns an adjuster to review the claim, policyholders should understand their policy’s O&P terms. If there is initial resistance, be prepared to negotiate using detailed documentation and evidence of project complexity. This may involve explaining how the scope of work requires professional coordination, even if the “three-trade rule” is not explicitly met. If negotiations stall, considering assistance from a public adjuster can provide guidance and support in advocating for O&P.