Overhead and Profit Dispute
A disagreement between the contractor and insurance carrier over whether overhead and profit (O&P) should be included in the estimate. O&P is the general contractor's markup for managing the project.
What Is an O&P Dispute
An overhead and profit dispute occurs when an insurance carrier refuses to include overhead and profit (O&P) in the damage estimate. O&P is the general contractor's markup for managing the repair project, typically 10% overhead and 10% profit (20% combined).
The Three-Trade Rule
Some carriers apply a "three-trade rule," arguing that O&P is only justified when three or more trades are needed (for example, roofing, siding, and gutters). This is a carrier-created guideline, not an industry standard or legal requirement. The actual standard is whether a general contractor is needed to manage the project.
Resolving O&P Disputes
To support O&P inclusion, document all trades involved in the repair, show that coordination between trades is required, and reference the project management responsibilities the contractor is performing. Some states have addressed O&P disputes through legislation or Department of Insurance bulletins.
Frequently asked questions
The dispute centers on whether the claim warrants overhead and profit charges. Carriers sometimes argue that O&P is only justified when multiple trades are involved (the 'three-trade rule'). Contractors argue that O&P is justified whenever a general contractor manages the project.
The three-trade rule is a guideline (not a formal rule) some carriers use to determine when O&P is warranted. It suggests that when three or more trades are needed for the repair, a general contractor is required and O&P should be included. Many contractors and industry organizations dispute this standard.
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