While most insurance companies that provide homeowner's insurance provide replacement cost coverage—meaning, the cost to repair or replace your damaged property—they generally are only required to pay this amount as work is performed and expenses are incurred. However, these “expenses” are usually not defined in the insurance policy. One item that is often included in these repair and replacement “expenses” is your general contractor (“GC's”) overhead and profit (“O&P”).
The Role of a General Contractor
A GC oversees the entire construction project, a role that includes, among other responsibilities, hiring and supervising the many different trades that may be required for your repairs. Think, carpentry, plumbing, electrical, masonry, etc. If multiple trades are needed to restore your property—a very common requirement in hurricane repair claims—a GC will be needed to sequence the performance of the different trades needed, coordinate and supervise their work, and obtain the necessary permits for the work.
What is Overhead?
Overhead expenses represent those costs incurred by a GC to operate his or her business. They are general, global costs that cannot be attributed to any one particular job. Think, rent for the GC's office, payroll for office staff, advertising, license fees, etc. The GC must pass some portion of this cost on to clients to ensure he can continue running his office and operating his business.
What is Profit?
Every GC is entitled to earn a profit on the jobs he or she performs. This is defined as the difference between what it costs the GC to perform the job and what he or she needs to charge the homeowner to ensure a profit is made that will keep the GC in business. Because the GC must cover these costs to ensure he or she is able to keep the business going to be able to complete your repairs, the necessary profit the GC must make on the job must be passed on to you.
In the Insurance Context, O&P is Generally 20% of Your Dwelling Repair Estimate
Generally in the insurance industry, a figure of 20% is typically added to the estimate for repair or replacement of your property to cover GCO&P where numerous trades will be required to accomplish the necessary repairs. This is because a GC will be required to supervise, coordinate, and oversee the different trades needed, a very common situation in a hurricane damage claim.
If a GC is Required, Be Sure Your Insurance Estimate Includes GCO&P
If you know your hurricane repairs will likely require numerous trades (plumbing, carpentry, cabinetry, roofing, etc.) which will require supervision by a GC, be sure the estimate your insurance company prepared includes some percentage (it should be around 20%) of your dwelling repair amount for GCO&P. This will often be shown as line items titled “overhead” and “profit” on a page of your estimate titled “Summary” that shows the overall amount your insurance company estimated for repairs to your “Dwelling.”
We have seen, recently, in the many Hurricane Michael and Sally claims we are handling, some insurance companies wrongfully omitting GCO&P costs in claims where the insurance company knows multiple trades are involved and a GC will be necessary to supervise the repairs. The insurance companies do this because they hope you will not be aware you are entitled to recover this cost if a GC is needed to supervise the repairs on your property, which is very common in a hurricane damage repair job. This is just another trick some insurance companies have been playing to avoid their obligation to pay your claim in full. Twenty percent of the total cost to repair your home could be a significant figure that you do not want to leave on the table.
Contact Us If You Have Any Questions About Items on Your Insurance Company's Estimate
If you have any questions about the estimate your insurance company has prepared for your Hurricane Sally damage, including whether it includes or omits GCO&P or any other items, please do not hesitate to contact us for a free, no-cost, no-obligation insurance claim review. There is no downside to learning more about your claim and ensuring your insurance company has included all necessary damages and expenses that will be required to fully restore your home to the condition it was in before the storm. You want to know your insurance company is offering you a full and fair payment on your claim before accepting the amount they are offering and settling your claim. We are always here to help, answer your questions, and make sure you take the necessary steps to protect your rights.