Overhead & Profit: When Your Claim Should Include O&P

Overhead and Profit — commonly called O&P — is one of the most frequently disputed line items in property insurance claims. It refers to the general contractor's fee for managing a repair project: typically 10% overhead (business expenses) and 10% profit, for a combined 20% on top of the direct repair costs.

Insurance companies routinely refuse to include O&P in their estimates, claiming the homeowner "doesn't need a general contractor." This argument falls apart when you look at what the repairs actually require.

When Is O&P Owed?

O&P is owed whenever the repair requires the coordination of multiple trades. If your claim involves plumbing, electrical, drywall, painting, and flooring — which most water damage claims do — someone has to manage those trades. That's what a general contractor does, and their overhead and profit are legitimate costs of repair.

The insurance company's own estimating software, Xactimate, includes O&P as a standard feature. When the carrier's adjuster removes it, they're making a judgment call that often contradicts how construction actually works.

The "Three Trade" Rule

Many in the industry reference a "three trade rule" — the idea that if a repair requires three or more trades (e.g., plumbing, drywall, paint), O&P should be included. While this isn't a formal regulation in most states, it's widely accepted as a reasonable standard. Even Xactimate's own documentation references the complexity of multi-trade coordination as justification for O&P.

The reality is that even repairs involving two trades often need a general contractor. Someone needs to schedule, coordinate, pull permits, ensure code compliance, and manage quality. A homeowner shouldn't be expected to serve as their own GC.

Common Carrier Arguments Against O&P

• "The homeowner can coordinate the trades themselves." The policy pays for what it costs to repair the property, not for the homeowner to become a project manager. The insured is entitled to have the work done professionally.
• "It's a simple repair."If the estimate has multiple trades, it's not simple. Even "small" water losses often involve demo, drying, plumbing, drywall, texture, paint, flooring, and baseboard.
• "We'll add it if you provide a signed GC contract."You shouldn't need to hire and sign with a contractor before the insurance company pays what the repair actually costs. The estimate should reflect the cost of repair regardless of whether the homeowner has already hired someone.

How to Fight for O&P

1. Get a written estimate from a licensed general contractor that includes O&P — this demonstrates that real-world contractors charge it.
2. Count the trades in the insurance company's own estimate. If they have three or more trades listed but no O&P, point out the inconsistency.
3. Cite your state's fair claims regulations. In California, the insurer must pay the reasonable cost of repair — and O&P is a reasonable cost when a GC is needed.
4. Put your demand in writing. Explain why O&P is appropriate and ask the carrier to add it or provide a written explanation for why they believe it's not owed.
5. If the carrier refuses, this becomes an amount dispute that can be resolved through appraisal.