O&P in Insurance Claims: Getting What You Are Owed

Overhead and profit (O&P) in insurance claims is calculated as 10% overhead plus 10% profit on the net claim amount in Xactimate (according to Verisk's standard calculation). O&P is the standard markup that covers a general contractor's business expenses and profit margin when coordinating multi-trade repair projects. Carriers are required to pay the actual cost of repairs under most state insurance regulations, and when that cost includes hiring a general contractor, O&P is part of the obligation.

Here's what you actually need to know.

What Overhead and Profit Actually Is

Overhead and profit (O&P) is the markup a general contractor charges to coordinate multi-trade repair projects on insurance claims. When a property suffers damage that requires multiple types of repair work - roofing, siding, drywall, painting, gutters, electrical - someone has to coordinate all of it. That's the general contractor. The GC hires the subcontractors, schedules the work, manages the project timeline, handles permits, deals with inspections, and takes responsibility for the finished product.

That coordination costs money. The GC has office rent, insurance, vehicles, employees, licenses, and all the other expenses of running a business. That's the overhead. And like any business, they need to make a profit on top of covering their costs. That's the profit.

In Xactimate, O&P is calculated as:

• 10% overhead on the net claim amount
• 10% profit on the net claim amount

These are two separate 10% additions, not compounded. On a $10,000 net estimate, that's $1,000 overhead + $1,000 profit = $12,000 total.

The Three-Trade Rule (and Why It's Not Actually a Rule)

The three-trade rule is an informal industry guideline - not a law, regulation, or policy requirement - used by some carriers to determine when O&P should be included. The concept states that if a claim involves three or more trade groups (roofing, painting, drywall, plumbing, electrical, flooring, etc.), a general contractor is reasonably needed to manage the project, and O&P should be paid.

The three-trade rule has no legal basis in most states. It is an internal guideline that some carriers adopted, and it has taken on a life of its own in the industry. Adjusters cite it as though it is settled law. It is not.

What IS settled is this: insurance policies require the carrier to pay the actual cost of repairs. If the actual cost of repairing a property includes hiring a general contractor, then the GC's overhead and profit is part of that cost. Whether the job involves two trades or five trades is relevant to the question of whether a GC is needed, but it's not the only factor.

A two-trade job might still need a GC if the work is complex, the scheduling is tight, permits are required, or the homeowner cannot reasonably coordinate the trades themselves. A five-trade job almost certainly needs a GC.

When Carriers Deny O&P

Carriers deny O&P constantly. Here are the most common arguments they use:

"Not Enough Trades"

The carrier claims the job involves fewer than three trades, so no GC is needed. This is the three-trade rule in action. Challenge it by documenting every trade required - including trades the carrier may have scoped out of their estimate. If the scope of work legitimately requires three or more trades, make sure your supplement reflects that.

"The Homeowner Can Coordinate"

Some carriers argue that the homeowner can hire individual subcontractors directly and coordinate the work themselves, eliminating the need for a GC. In theory, sure. In practice, asking a homeowner who just had their roof torn off by a storm to become a project manager for a multi-trade repair is unreasonable. Most homeowners have no idea how to schedule subcontractors, pull permits, or verify work quality.

"You're Not a General Contractor"

If the contractor performing the work is a specialty contractor (a roofing company, for example), the carrier may argue that O&P doesn't apply because the work is being done by a single-trade specialist. If you're a roofing company that also handles siding, gutters, and interior damage, make sure your license and scope reflect that. GC licensing requirements vary by state.

"The Policy Doesn't Cover O&P"

This one is misleading. Virtually no insurance policy explicitly mentions overhead and profit. But policies require the carrier to pay the cost of repairs. If a GC is needed and the cost of the GC includes O&P, it's covered. Several state insurance departments have issued bulletins confirming this interpretation.

How to Get O&P Paid on Your Claims

If you're a contractor or public adjuster fighting for O&P, here's the practical approach:

1. Document Every Trade

Before you submit the supplement, list every trade involved in the repair. Be specific. "Roofing, gutters, siding, painting, drywall, insulation, electrical" is a lot harder for a carrier to dismiss than "roofing and some interior work." Each trade should correspond to specific line items in the Xactimate estimate.

2. Include O&P in Your Xactimate Estimate

Xactimate has a built-in setting to include or exclude O&P. When you submit your estimate or supplement, make sure O&P is toggled on. Don't just mention it in a cover letter - include it as calculated line items in the estimate itself so the carrier has to address it line by line.

3. Write a Justification Letter

Attach a written justification explaining why a general contractor is necessary for this specific project. Reference the trades involved, the coordination required, permit requirements, project timeline, and any relevant state guidelines or insurance department bulletins. Keep it factual and professional. Don't get emotional.

4. Reference State Guidance

Several states have issued bulletins or guidelines supporting O&P when a GC is reasonably needed. Research your state's position. If your state insurance department has published guidance, cite it directly in your supplement documentation.

5. Escalate When Necessary

If the field adjuster denies O&P, ask for their reasoning in writing. Then escalate to their supervisor. If the supervisor upholds the denial, you have options: file a complaint with the state insurance department, invoke the appraisal clause in the policy, or advise the homeowner to consult an attorney or public adjuster.

O&P Math in Xactimate

Here's how Xactimate calculates O&P so you can verify it on any estimate:

Component	Calculation	Example ($10,000 net)
Net claim (materials + labor)	Base amount	$10,000
Overhead (10%)	Net x 0.10	$1,000
Profit (10%)	Net x 0.10	$1,000
Total with O&P		$12,000

Some people assume 10% + 10% = 21% (compounded). That's not how Xactimate calculates it. Both percentages apply to the net claim amount independently, so it's a 20% addition total.

Common Mistakes That Cost Contractors O&P

• Not including O&P in the Xactimate estimate. If you don't toggle it on, the carrier certainly won't add it for you.
• Failing to document all trades. If your estimate only shows two trade groups but the actual work involves five, your documentation is working against you.
• Accepting the first denial. Many contractors hear "O&P denied" and move on. The first denial is often the beginning of the conversation, not the end.
• Submitting a contractor bid instead of a Xactimate estimate. Carriers live in Xactimate. If you submit O&P as a line item on a contractor bid in a different format, it's easier for them to dismiss. Submit it in Xactimate so they have to respond within the same system.
• Not knowing your state's position. If your state insurance department has published guidance favorable to O&P, and you don't cite it, you're leaving your strongest argument on the table.

O&P is not a bonus. It's not a windfall. It's the cost of hiring a general contractor to manage a multi-trade repair, and it's part of the actual cost of restoring the property. Every contractor and public adjuster working insurance claims should understand how to document it, include it, and fight for it when carriers push back.

If you need to convert carrier PDF estimates into ESX files for Xactimate review and supplement writing, CapOut converts the PDF and sends it directly to your Xactimate account in seconds. CapOut also breaks down the estimate by trade so you can see exactly which trades are scoped (strengthening your O&P justification), and its AI Claim Assistant writes documented, cited responses when a carrier denies a line item, pulling from adjuster emails, manufacturer specs, and building codes.

Related Guides

• Insurance Claim Supplements: How to File and Win
• Storm Damage Roof Insurance Claims: Step-by-Step Filing Guide