Overhead and Profit (O&P): When Insurance Owes It and How to Prove It

Overhead and profit — the general contractor's markup for running and coordinating a job — is the single most disputed line on a roof claim. It's also one of the most misunderstood. Carriers strip it off routinely, usually with three words: the "three-trade rule." Deny it on anything that isn't a three-trade job, the thinking goes, and you shave a fifth off thousands of estimates a year.

Here's the problem with that: the three-trade rule isn't law, most states don't recognize it as the test, and the company that makes Xactimate doesn't endorse it either. If you've been eating denied O&P because an adjuster told you a roof is "one trade," you've been giving away money you were likely owed.

What overhead and profit actually is

O&P is the general contractor's markup for running the business and coordinating the job — separate from the cost of the shingles and the labor to nail them down. The figure most people mean by "O&P" is the old insurance convention of 10% overhead plus 10% profit — "10 and 10," or 20% on top of direct costs. Treat that as the customary starting point, not a fixed rule. Actual markups vary by contractor and market, plenty of shops bill 15% or more, and — as we'll see below — Xactimate itself leaves the percentage to the estimator based on the job. What's actually standard isn't a specific number; it's that a general contractor's overhead and profit belong in the estimate at all.

Split them apart and they're not interchangeable:

• Overhead covers the costs of being in business that you can't pin to any one job — office rent, G&A, licenses, insurance, the phone that rings whether or not you're on a roof. Verisk, which publishes the Xactimate price lists, files these under general overhead: G&A expenses, office rent, utilities, salaries for office staff, advertising.
• Profit is what's left after costs, and it's what lets the company reinvest and stay in business.

The reason this matters on an insurance estimate is mechanical: O&P is not baked into Xactimate's unit prices. When Verisk surveys the market to set its prices, contractors are specifically asked to quote without their overhead and profit built in. So O&P has to be added on top — it doesn't show up on its own.

The three-trade rule, and why carriers love it

Somewhere along the way, an adjusting rule of thumb took hold: O&P is only owed when a job involves three or more separate trades — say a roofer, a gutter crew, and a painter. Two trades or fewer, and the carrier treats the job as simple enough that no general contractor is needed, so no O&P.

You can see why a carrier likes it. It's a bright line, it's easy to apply, and on a "roof-only" job it wipes 20% off the estimate. Multiply that across every claim a large carrier handles in a hail season and the three-trade rule is worth a staggering amount of money — to them.

The catch is that it's a convention, not a rule. It doesn't appear in your policy. It has no binding legal authority in most states. And it was never handed down by a court or a regulator — it's an industry habit that hardened into something adjusters now cite like statute.

What Xactimate's own maker says (the part adjusters skip)

This is where the argument usually turns, because contractors assume the software is on the carrier's side. It isn't.

Verisk's published guidance on overhead and profit is explicit that O&P isn't in the unit prices and has to be added as a percentage in the Estimate Parameters window. More importantly, it doesn't set a trade count. Verisk says the amount and application of O&P is "left to the discretion of the estimator based on the conditions of the job" and the contractor doing the work. Nowhere in that guidance is there a three-trade rule, a two-trade rule, or any trade count at all.

So when an adjuster tells you Xactimate requires three trades for O&P, they're describing a house rule, not the software. The tool leaves it to judgment about the job in front of you — which is exactly what the law does too.

The standard that actually governs: "reasonably likely"

Most states have landed on a test that has nothing to do with counting trades. The question is whether a general contractor's involvement is reasonably likely to be needed to repair the loss. If a prudent property owner would bring in a GC to coordinate a job of this scope and complexity, O&P belongs in the estimate.

Two things about that standard trip up adjusters:

It doesn't depend on whether you actually hire a GC. The test is what the repair reasonably requires, not what paperwork you filed. O&P can be owed even if you self-perform, and even if the repair is never completed — because it's part of arriving at the true cost of the loss.

A "roof-only" job usually isn't one trade anyway. Look at what a full replacement actually pulls in: tear-off and debris haul, roofing, gutters and downspouts, detaching and resetting solar or satellite, sometimes HVAC line-set or fin work, sometimes interior repairs from the leak that started the claim. The adjuster calling it "one trade" is describing the label, not the work. The trade count isn't the test — but even when carriers insist on playing that game, most roof replacements clear the bar on their own terms.

Courts have backed this up. In Ghoman v. New Hampshire Insurance Co. (N.D. Tex. 2001), a federal court held that an insurer breached its policy by stripping overhead and profit — and sales tax — out of an actual cash value payment. What makes the case useful is the facts: the insured had cut costs by using surplus materials and in-house maintenance staff, spending far less than the estimated replacement cost. The carrier argued it shouldn't have to pay O&P the owner never actually incurred. The court disagreed, reasoning that actual cash value is the full replacement cost minus depreciation, and that replacement cost properly includes the contractor's O&P. What you're owed turns on what the repair reasonably requires — not on how cheaply you managed to get it done.

So when is O&P not owed?

The honest answer — and the one that keeps you credible with adjusters — is that O&P isn't automatic. It's owed when a general contractor's coordination is reasonably needed, which describes most full roof replacements but not every job.

Where it doesn't belong is a genuinely simple repair a single crew handles start to finish: swapping a few blown-off shingles, replacing one pipe boot, patching a small section. No sequencing, no multiple trades, no real coordination — no general-contractor role to compensate. Stacking O&P onto a $400 repair is exactly the kind of overreach that trains adjusters to strip it everywhere, including the jobs where you've genuinely earned it.

So the rule of thumb isn't "always bill O&P." It's: bill it wherever the coordination is real, and say why. On a full tear-off and replacement, the justification writes itself. On a minor repair, think twice. (And in the minority of states that only pay O&P once it's actually incurred, that's a separate hurdle worth checking before you count on it.)

Is O&P depreciated? RCV vs. ACV

Getting O&P into the estimate is half the fight. Whether you collect all of it up front depends on your policy type.

On a replacement cost (RCV) policy, O&P is part of what you recover once the work is done, the same as materials and labor. On an actual cash value (ACV) settlement, it gets murkier: some states let carriers depreciate O&P along with everything else, and some don't. The Florida Supreme Court, for instance, has allowed O&P to be depreciated like any other repair cost — but plenty of states haven't ruled at all.

The short version: don't assume O&P is automatically non-depreciable, and don't assume it's automatically depreciable either. It's state-specific, and it's one more reason to know how your state treats these numbers. For the full picture on how depreciation works, see RCV vs. ACV vs. recoverable depreciation.

How to actually get O&P paid

Knowing you're owed it doesn't collect it. Here's how contractors who win this argument do it.

1. Put it in the estimate first. Add your 10 and 10 as percentages in the Estimate Parameters window so O&P is on the document from the start. Leading with an estimate that already carries O&P puts the burden on the carrier to strike it, rather than on you to add it.

2. Document the coordination the job requires. Don't assert "this is a three-trade job." Show the work: list every trade and task the repair pulls in, and describe what a general contractor is coordinating — scheduling, sequencing, inspections, cleanup, warranty. You're building the record for the reasonably-likely standard.

3. Cite the standard, not the myth. If the denial rests on the three-trade rule, don't argue it on the carrier's terms. Reframe to the actual test: would a GC reasonably be needed for a job of this scope? Point to Xactimate's own guidance leaving O&P to the conditions of the job, and to your state's treatment of the reasonably-likely standard.

4. Get the denial in writing. A verbal "we don't pay O&P on roofs" evaporates. Ask the adjuster to deny it in writing with their reasoning. That paper trail is what you escalate on. For the full escalation path — re-inspection, supervisor review, appraisal, and beyond — see how to fight a lowball insurance estimate.

5. Stay factual. O&P denials are won on documentation and the standard, not on volume. The adjuster reviewing your rebuttal usually didn't write the original estimate — give them a clean, sourced argument and let it do the work.

Key takeaways

• O&P is the general contractor's markup for coordinating the job — customarily "10 and 10" (20%), though the exact percentage varies and Xactimate leaves it to the estimator. It's deliberately not baked into unit prices, so it has to be added.
• The "three-trade rule" is an adjusting convention with no binding legal authority in most states. Xactimate's maker, Verisk, doesn't endorse a trade count.
• The governing test in most states is whether a general contractor is reasonably likely to be needed — which most roof replacements satisfy.
• It isn't automatic. Skip O&P on genuinely simple, single-crew repairs; billing it there undermines your credibility everywhere else.
• Whether O&P is depreciated on an ACV settlement varies by state.
• Win it by putting O&P in the estimate up front, documenting the coordination, citing the real standard, and getting denials in writing.

O&P is one line on the estimate. It's also one of the line items adjusters miss or strip most often, and on a full roof replacement it's frequently the largest single number in dispute. Knowing when it's owed — and being able to prove it — is the difference between a supplement that gets approved and money left on the table.

Stop giving away O&P you're owed

Recovering O&P isn't about adding a percentage — it's about backing that percentage with the coordination detail and the standard a carrier will actually accept. That's what ClaimSpark is built to do. It analyzes your claim documents, flags stripped O&P and other missing line items, and builds a professional, insurance-ready supplement package that justifies O&P the way carriers look for — so it holds up instead of getting kicked back. All for a flat fee per supplement, not a cut of your claim.

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ClaimSpark helps roofing contractors generate professional estimates, build supplement packages, and maximize claim value. Try free — 1 estimate and 1 supplement included.