Three-Trade Rule
The three-trade rule is the industry standard stating that when three or more distinct trades are required on a single insurance claim, the 20% overhead and profit markup (10% overhead + 10% profit) should be included in the Xactimate estimate. The three-trade rule is supported by Xactimate's own documentation and most state insurance departments.
The Standard That Unlocks O&P
The three-trade rule is the industry standard for determining when overhead and profit should be included on an insurance estimate: when three or more distinct trades are required on a single claim, the 20% O&P markup (10% overhead + 10% profit) applies. Xactimate's own documentation supports this standard, and most state insurance departments recognize it. The three-trade rule is the primary basis for O&P eligibility on residential claims.
What Counts as a Trade
A trade is a distinct category of work requiring specialized skills or licensing. Roofing is one trade. Plumbing is another. Painting is another. Each trade should be assigned to its own trade group in Xactimate, not bundled together.
| Trade | Examples | Xactimate Category |
|---|---|---|
| Roofing | Shingles, underlayment, flashing | RFG |
| Siding / Exteriors | Vinyl siding, fiber cement, trim | EXT / SDG |
| Gutters / Sheet Metal | Gutter replacement, downspouts | EXT |
| Painting | Exterior paint, stain, caulk | PNT |
| Plumbing | Pipe boot replacement, drain repair | PLM |
| Electrical | Exterior lighting, outlet repair | ELC |
| Drywall | Interior water damage repair | INT |
| HVAC | Condenser pad, ductwork | MEC |
How Carriers Fight the Three-Trade Rule
Carriers use three main arguments to deny O&P, and you need a counter for each one.
The first: "the trades are related." A carrier may argue that roofing and gutters are "the same trade" or that siding and painting are "related work." They are not. Each requires different skills, different materials, and often different subcontractors. Reference Xactimate's trade group definitions in your response.
The second: "the contractor is self-performing." If the carrier claims you are doing all the work yourself and not managing subcontractors, provide subcontractor invoices and agreements. Even if your crew handles multiple trades, the management overhead exists.
The third: "only two trades are involved." This is where proper trade group assignment in Xactimate matters. If you bundled gutters under the roofing trade group instead of separating it, you just handed the carrier ammunition to deny O&P. Assign every distinct trade to its own group.
Why the Three-Trade Rule Matters on Every Storm Claim
Most storm damage claims naturally involve three or more trades. A hailstorm that damages the roof (roofing), siding (exteriors), and gutters (sheet metal) hits three trades by default. Add painting the damaged fascia and you have four. Add replacing a damaged plumbing vent boot and you have five. On storm damage claims, the three-trade rule is not a stretch - it is the reality of multi-component damage. Document every trade, assign each to its own group, and include O&P on every qualifying supplement.
Frequently asked questions
A trade is a distinct type of work requiring specialized skills: roofing, siding, gutters, painting, plumbing, electrical, HVAC, drywall, flooring, etc. Each trade should be assigned to its own trade group in Xactimate.
Carriers push back by claiming trades are 'related' or that the contractor is performing the work themselves. The defense: document every subcontractor and every trade on the job. Xactimate's own documentation and most state insurance departments support the three-trade standard.
No credit card required