50-State Overhead & Profit Map: Where the Law Stands on General Contractor O&P

Overhead and profit(O&P) is the fee a general contractor charges for managing, coordinating, and overseeing a repair project — typically 10% overhead and 10% profit, for a combined 20% on top of direct repair costs. Whether and when an insurer must include O&P in a claim payment is one of the most litigated issues in property insurance.

Across the country, two competing legal standards have emerged. The majority rule holds that O&P must be included whenever a general contractor is “reasonably likely” to be needed — regardless of whether one has actually been hired. The minority ruleholds that O&P need not be paid until the policyholder actually hires a general contractor and incurs the expense.

This article maps the law in every state where published authority exists, organized by which standard applies. For a detailed discussion of the legal principle underlying the majority rule, see our article on the three-trade rule. For the leading minority-rule case and its implications, see our article on the Kurach decision.

The Two Competing Standards

Majority Rule: “Reasonably Likely”

Under the majority rule, O&P must be included in the insurer’s estimate — including the initial actual cash value payment — whenever the insured is “reasonably likely” to need a general contractor to perform the repairs. The policyholder does not need to actually hire a GC or complete repairs before receiving O&P. The test is whether the scope and complexity of the work make GC involvement probable.

This is the standard adopted by the clear majority of states that have addressed the issue through case law or regulation.

Minority Rule: “Actually Incurred”

Under the minority rule, O&P is a cost that need not be paid until the policyholder actually hires a general contractor and incurs the expense. This approach treats O&P as part of replacement cost that is payable only upon completion of repairs, rather than as a component of the initial ACV payment. The genesis of this view is Snellen v. State Farm Fire & Cas. Co., 675 F. Supp. 1064 (W.D. Ky. 1987).

Majority Rule States: O&P Owed When “Reasonably Likely”

These states have appellate case law, regulatory bulletins, or both establishing that O&P is owed whenever a general contractor’s involvement is reasonably likely.

Arizona

Key Authority: Tritschler v. Allstate Ins. Co., 213 Ariz. 505, 144 P.3d 519 (Ariz. Ct. App. 2006).

As a matter of first impression, the court held that “actual cash value” includes any cost that would be “reasonably likely incurred” in repair or replacement of a covered loss, including general contractor overhead and profit.

Read on FindLaw.

Colorado

Key Authority:Colorado Division of Insurance (DORA) Bulletin B-5.1 (1998, reissued 2007) — “Calculation of Actual Cash Value: Prohibition Against Deducting Contractors’ Overhead and Profit from Replacement Cost Where Repairs Are Not Made.”

The bulletin prohibits deducting contractor O&P in addition to depreciation when calculating ACV under replacement cost policies. ACV equals replacement cost minus depreciation, without further deduction for O&P. Supporting case law: Woodgate South Homeowners Assoc. v. American Family Mut. Ins. Co., No. 2013cv30784 (Colo. Dist. Ct. Oct. 20, 2014).

Colorado DOI Bulletins.

Florida

Key Authority: Trinidad v. Florida Peninsula Ins. Co., 121 So. 3d 433 (Fla. 2013) (Florida Supreme Court); Fla. Stat. § 627.7011.

The Florida Supreme Court held that replacement cost coverage includes O&P whenever the insured is “reasonably likely to need a general contractor for the repairs.” The insured need not actually hire a GC or complete repairs before receiving O&P.

Read on FindLaw. Read Fla. Stat. § 627.7011.

Illinois

Key Authority: Windridge of Naperville Condo. Assoc. v. Philadelphia Indem. Ins. Co. (N.D. Ill.; affirmed 7th Cir. 2019, 932 F.3d 1035).

The court held that if repairing or replacing property requires a general contractor, the cost of repair includes the industry-standard O&P (10 and 10). No policy language permits withholding O&P when a GC is required. The Seventh Circuit affirmed, noting that “the majority of courts have concluded that general contractor overhead and profit should be included in the cost of repair.”

Michigan

Key Authority: Salesin v. State Farm Fire & Cas. Co., 581 N.W.2d 781 (Mich. Ct. App. 1998).

The court held that replacement cost used to ascertain ACV is an estimate of all costs “likely and reasonably expected to be incurred,” and that GC expenses cannot be deducted unless such services are not likely required. Notably, the court held that O&P was owed even though the policyholder would “almost certainly” not incur that expense.

Read on FindLaw.

New York

Key Authority: Mazzocki v. State Farm Fire & Cas. Corp., 1 A.D.3d 9 (N.Y. App. Div. 3rd Dept. 2003).

The court held that “replacement cost” in insurance policies can reasonably be interpreted to include O&P whenever it is “reasonably likely” that a general contractor will be needed. The decision follows the broad evidence rule for ACV, supported by McAnarney v. Newark Fire Ins. Co., 247 N.Y. 176 (1928).

Read on FindLaw.

Oklahoma

Key Authority: Burgess v. Farmers Ins. Co., Inc., 151 P.3d 92, 2006 OK 66 (Okla. 2006) (Oklahoma Supreme Court).

The Oklahoma Supreme Court certified a class for all Oklahoma policyholders whose claims involved three or more anticipated trades at the time of ACV adjustment and who were not paid the 20% O&P. The court held that O&P — typically 10% overhead plus 10% profit — is owed when the scope of work requires multiple trades.

Read on Justia.

Pennsylvania (Policies Silent on O&P)

Key Authority: Gilderman v. State Farm Ins. Co., 649 A.2d 941 (Pa. Super. 1994); Mee v. Safeco Ins. Co. of America, 908 A.2d 344 (Pa. Super. 2006).

For policies that are silent on O&P, Pennsylvania follows the majority rule: O&P is owed when a general contractor is reasonably likely to be needed. Gilderman established the “reasonably likely” standard; Mee added a three-factor test. However, policies with explicit O&P-withholding language are governed by Kurach v. Truck Ins. Exchange, 235 A.3d 1106 (Pa. 2020), which upheld conditional exclusion of O&P from ACV payments.

Gilderman on Justia. Mee on Justia.

Texas

Key Authority: Texas Commissioner’s Bulletin B-0045-98 (June 12, 1998); Ghoman v. New Hampshire Ins. Co., 159 F. Supp. 2d 928 (N.D. Tex. 2001).

The Commissioner’s Bulletin states that “the deduction of prospective contractors’ overhead and profit and sales tax in determining the actual cash value under a replacement cost policy is improper, is not a reasonable interpretation of the policy language, and is unfair to insureds.” Violations may trigger disciplinary action under the Texas Insurance Code. The court in Ghomanheld that replacement costs include “any cost that an insured is reasonably likely to incur,” including O&P and sales tax.

Texas Commissioner’s Bulletin B-0045-98. Ghoman on Justia.

Regulatory and Statutory Framework States

These states have addressed O&P through statutes, regulations, or formal regulatory bulletins, sometimes in addition to case law.

California

Key Authority: 10 CCR 2695.9 (Fair Claims Settlement Practices Regulations); Jefferson Ins. Co. v. Superior Ct. of Alameda County, 3 Cal.3d 398 (1970).

The regulation requires estimates that “restore the damaged property to no less than its condition prior to the loss” meeting “accepted trade standards for good and workmanlike construction.” The insurer must verify repair costs are “accurate and representative of costs in the local market area.” Labor costs are not subject to depreciation. The policyholder has the right to choose their own contractor.

While the regulation does not explicitly mandate O&P by name, it requires estimates reflecting the actual cost to restore property — which implicitly includes O&P when a general contractor would be needed. The California Supreme Court in Jefferson adopted the broad evidence rule for ACV, holding that ACV does not simply mean replacement cost less depreciation.

Read 10 CCR 2695.9. CDI Fair Claims Regulations.

Tennessee

Key Authority: Tennessee Board of Licensing Contractors Rule (effective January 1, 2014); Parkway Assoc., LLC v. Harleysville Mut. Ins. Co., 129 Fed. Appx. 955 (6th Cir. 2005).

Tennessee’s contractor licensing rule requires a licensed contractor when: (1) the project cost is $25,000 or more (excluding masonry), or (2) the project involves more than one subcontractor or tradesman. This establishes a two-trade threshold — not three — for when a GC is legally required. The Sixth Circuit in Parkwayheld that O&P is owed when “it is reasonably likely that the insured would be expected to hire a contractor.” Because Tennessee law requires a licensed GC when two or more trades are needed, O&P is effectively owed on most multi-trade claims.

Tennessee O&P Analysis. TN Contractor Board Rules.

Minority Rule States: O&P “Actually Incurred”

A small number of jurisdictions have adopted the minority position that O&P need not be paid until the policyholder actually hires a general contractor and incurs the expense.

Kentucky

Key Authority: Snellen v. State Farm Fire & Cas. Co., 675 F. Supp. 1064 (W.D. Ky. 1987).

The seminal minority-view case. The court held that O&P is a “non-damage” having no relation to the value of damaged property and represents only a cost incurred if repair or replacement takes place. O&P is not payable under a replacement cost policy until actually incurred. Snellenhas been cited by carriers nationwide to justify withholding O&P, but its reasoning has been rejected by the majority of courts that have considered the question.

Pennsylvania (Policies with Explicit O&P-Withholding Language)

Key Authority: Kurach v. Truck Ins. Exchange, 235 A.3d 1106 (Pa. 2020) (4–3 decision).

Where policy language explicitly provides that “actual cash value settlements will not include estimated general contractor fees or charges … unless and until you actually incur and pay such fees,” the insurer may withhold O&P from ACV payments. This applies only to policies with explicit withholding language. Policies silent on O&P remain governed by Gilderman and Meeunder the majority “reasonably likely” standard.

Read on Justia.

Washington

Key Authority: Hess v. North Pacific Ins. Co., 122 Wash.2d 180 (1993) (Washington Supreme Court).

The court held that an insured under a fire policy is not entitled to recover full replacement costs (including O&P) unless actual repair or replacement is undertaken and completed.

Read on Justia.

States with Split, Limited, or No Published Authority

Many states have not yet produced published appellate authority directly addressing O&P in first-party property insurance claims. The absence of authority does not mean O&P is not owed — most follow general indemnity principles and NAIC model guidelines that support O&P inclusion. Several states have limited or conflicting authority.

Louisiana (Split Authority)

Louisiana has split federal district court decisions with no controlling state appellate authority. Edwards v. Allstate Prop. & Cas. Co., 2005 WL 221558 (E.D. La. 2005) dismissed an O&P claim for failure to demonstrate need for a GC. But Nguyen v. St. Paul Travelers Ins. Co.(E.D. La. 2007) held that ACV equals replacement cost less depreciation, with replacement cost including O&P.

Wisconsin (Settlement Authority Only)

American Family Mutual Insurance Co. paid a $16.37 million settlement in 2025 resolving class action allegations that it improperly deducted labor, overhead, and profit from ACV payments. No published appellate opinion establishes the rule, but the settlement outcome strongly suggests the “reasonably likely” standard would apply.

Minnesota, New Jersey, Alabama

Minnesota has no statute or regulation specifically addressing O&P; the law comes from contested case decisions applying general contract interpretation principles. New Jersey follows the broad evidence rule for ACV but has no published O&P-specific appellate authority. Alabamaproposed SB 268 (2017) to define “cost of undertaking” to include “materials, labor, supervision, overhead, and profit,” but enactment status is unconfirmed.

All Other States

The following states have no identified published appellate authority specifically addressing O&P in first-party property claims: Alaska, Arkansas, Connecticut, Delaware, Georgia, Hawaii, Idaho, Indiana, Iowa, Kansas, Maine, Maryland, Massachusetts, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Mexico, North Carolina, North Dakota, Ohio, Oregon, Rhode Island, South Carolina, South Dakota, Utah, Vermont, Virginia, West Virginia, and Wyoming.

In these states, O&P disputes are typically resolved by applying general principles of contract interpretation and the state’s version of the NAIC Unfair Claims Settlement Practices Act, which requires that repair estimates reflect the actual cost to restore damaged property to its pre-loss condition.

Summary Table

Green = Majority rule (O&P owed when reasonably likely). Red = Minority rule (O&P must be actually incurred). Yellow = Split or limited authority.

The NAIC Framework

Neither the NAIC’s Model Unfair Claims Settlement Practices Act (Model 900) nor its Unfair Property/Casualty Claims Settlement Practices Model Regulation (Model 902) explicitly addresses O&P by name. However, Model 900 Section 4(A) prohibits “misrepresenting pertinent facts or insurance policy provisions relating to coverages at issue,” and Model 902 requires repair estimates that restore property “to no less than its condition prior to the loss.” These provisions provide a framework for arguing that withholding O&P constitutes an unfair claims practice when the repair realistically requires a general contractor.

Key Resources

For additional research, these are the most comprehensive resources on O&P law across jurisdictions:

• MWL Law 50-State GCOP Chart — The most comprehensive published state-by-state analysis of O&P case law. Article and PDF chart.
• Claims Journal — Gary Wickert, “Paying Overhead and Profit in First-Party Claims” (Oct. 31, 2019). Read article.
• Adjusters International — “Overhead and Profit” publication. Read publication.
• United Policyholders — “What’s UP with Overhead and Profit?” Read guidance.
• Merlin Law Group — Multiple articles on O&P law. When Is a Policyholder Entitled to O&P?

Related Articles

• Overhead & Profit: When Your Claim Should Include O&P
• The Three-Trade Rule: Why Your Insurance Company Owes O&P
• When Your Policy Secretly Restricts O&P: The Kurach Decision
• Xactimate Is Not the Law
• ACV vs. RCV: Actual vs. Replacement Cost Value
• Loss Settlement Provisions