Over 20 years ago (and before my time with the office), Jonathan Wheeler argued and won a key decision case in the property insurance industry: Gilderman v. State Farm Ins. Co., 437 Pa.Super. 217 (1994).
The case stood for a very clear proposition: An insurance company was not allowed to withhold overhead and profit (O&P) from an actual cash value payment of a claim when it is reasonably expected that a general contractor would be used.
This has been binding law in Pennsylvania ever since. And while most carriers have stuck with this, it seems that some insurance providers are trying to push the limits again.
You may remember a post I wrote last year about O&P, in which I broke down why O&P needs to be paid as part of the actual cash value payment. Now, I would like to address further what triggers overhead and profit, because there are several misconceptions out there that need to be cleared up.
First, it’s most common to hear that overhead and profit is required on any job that has three or more trades. This has become the “general” industry standard for as long my research could find.
But this isn’t always the case. The real definition in Pennsylvania is that overhead and profit is owed when a general contractor is to be expected.
This can cut both ways. For example, if you have a roof claim with some interior damage to drywall and insulation, then that may only be two trades (a roofer and a carpenter), but that would still be enough to trigger overhead and profit. Here’s why: No one would expect a roofer to do the repair to your drywall and insulation.
On the other hand, just because there are three or more trades involved, doesn’t necessarily mean that a general contractor is needed. For a claim of wind damage to your roof, you may have to take down gutters, replace shingles and sheathing (plywood), and have a TV antenna taken down and put back up to necessitate those repairs. Just because there are gutter specialists, shingle specialists, carpenters, and TV repairmen that could easily do each respective job, most likely, your roofer will complete the entire job. In this case, overhead and profit may not be necessary.
The takeaway? Overhead and profit needs to be reviewed on a case by case basis. Here is a simple way to determine if you are owed for overhead and profit: If you have a loss, and you think to yourself, “I will be calling a general contractor to fix this,” then you should be paid for overhead and profit.
If you find yourself being denied overhead and profit, or if your carrier refuses to pay it as part of the actual cash value payment, give us a call and we will do all we can to help.
