When Are Overhead and Profit Recoverable?

Consider several Overhead and Profit scenarios you might encounter:

  • An insurance company will pay Overhead and Profit after work is completed, but they won’t pay it on actual cash value (ACV) payments.
  • An insurance company withholds Overhead and Profit from roofing, cleaning, mitigation, or debris removal or other specific areas of an estimate.
  • An insurance company refuses to pay Overhead and Profit because it says the claim lacks the complexity required to warrant an O&P payment.

If you’ve run into these kinds of situations, know that the insurance company may not be right, and their actions may be considered bad faith.

The Guiding Principles Around Overhead and Profit

Usually, a contractor’s O&P are recoverable if it’s reasonable to assume that the homeowner (the insured party) would have hired a contractor to make repairs and if there is enough subcontractor work that charging for overhead makes sense. 

Although it differs from state to state, in many parts of the country, the determination of recoverable O&P boils down to the statement above. So, there are two questions to ask yourself if you wonder about adding O&P to the claim:

  1. Would the insured have most likely hired a contractor to do property repairs?
  2. Are multiple subcontractors involved in the repairs?

Overhead and profit

What You Can Do

Think about it this way.

Standard O&P insurance claims are 10 and 10. That means 10% additional for overhead and 10% additional for profit. So, for example, on a $70,000 project, you would claim $7,000 for overhead and $7,000 for profit.

The insurance company will of course try to skimp on the settlement, so it’s going to balk at a 10/10 O&P claim if it thinks those amounts are not deemable. 

Your job is to either 1) demonstrate the 10/10 is deemable or 2) speak to the insurance desk adjuster and negotiate, i.e., ask for 5% and 5% or 6% and 6%, and demonstrate that those percentages are deemable.

How do you demonstrate that 10/10 or 5/5 are deemable? By presenting your expenses associated with the job and with managing the other trades. 

Proving Deemable Expenses

You may be a roofer but you’re going to make other repairs too, such as fixing surfaces with hail damage – siding or garage doors or screens or gutters. You’re going to get subcontractors to do those repairs, which entails finding and vetting them. You’ll be driving to the job site (think gas costs and the value of your time) to meet the subs and get quotes. The extra work you must do to coordinate and manage subs doing repairs is deemable as overhead.

About Supplements and O&P

O&P can be supplemented all day long if there are demonstratable overhead expenses generated by having multiple subs on the job. 

At American Roof Supplements, we always say, don’t leave money on the table! Get your supplements done by an American Roof Supplements expert. We’ll get as much money as we can for you, building your margin so your jobs are actually profitable. 

We’ve got Xactimate expertise plus years of experience doing successful supplements. We understand the parameters around Overhead & Profit, and we know what will fly for insurance companies and what won’t. 

Call us today at (469) 515-8435.