How Does the Insurance Company Justify Adding O&P (Overhead and Profit) to Everything Except the Roof?

How does the company justify adding O&P to everything except the roof? To understand this question, you must first know what O&P means. In the insurance industry, Overhead (10%) and Profit (10%), commonly referred to as O&P, is owed when it becomes necessary to have multiple subcontractors perform work to repair damages to your property cause by a covered peril in the policy.

Your policy provides coverage for the cost to repair or replace the property damaged by a covered loss. Although not generally stated, this includes the cost of O&P. So, while your coverage includes this additional expense, many insurance companies use the benchmark that it is only owed if more than three trades are involved in the repair process. However, there is no binding authority on the 3-trade rule and the truth is that almost every property loss involves multiple trades. When you have a hail claim, it isn’t just the roof that is damaged.

How Your Insurance Company Just Kept 20% of Your Claim

Once you have a clear understanding of what O&P is, then it is easy to see where the question comes into play. How does the insurance company justify adding O&P to everything in their estimate except for the roof itself? The roof is the single most expensive item on the estimate most likely. By excluding O&P on this one item, it just saved the insurance company a bundle of money at the expense of the insured. Now multiply this by the number of claims just in your area and you get the picture.

Another excuse the insurance companies use is that they will pay the O&P if you can prove that the charge was actually incurred. However, there is absolutely nothing in the policy that states that O&P is only paid when incurred. In fact, it discredits the insurance adjuster’s estimate when they attempt to allow for O&P on everything except for the roof. It gives the appearance of an obvious money-saving technique when included on everything except the big-ticket item. The purpose of O&P is so that the policyholder can hire one general contractor to coordinate all repairs. That includes the roof.

It takes a licensed professional to sort through these types of issues and make sure that the policyholder isn’t being given less than they deserve.

  • Chris Green

    Great discussion Jill. Unfortunately, the carriers will always explore ways to minimize claim payments. I helped fight this issue back in the early 1990’s through a class action suit vs State farm, who was “pioneering” the withholding of the entire O/P costs in the greater Philadelphia area. We prevailed, of course.

    I am aware of a least one policy that states that O/P will only be paid when incurred, that’s the Farmers NextGen policy. That language was tested in court recently, again in the Philadelphia area, and despite the fact that the policy actually stated the O/P wasn’t payable unless incurred, the Phila Court of Common Pleas ruled that farmers must pay the O/P upfront, as part of the ACV settlement (http://www.propertyinsurancecoveragelaw.com/files/2017/05/Kurach-v-TruckInsuranceExchange-Opinion.pdf).

    Great job informing the public on these issues, keep up the good work.

    Christopher Green
    Richard Green & Son Public Adjusters