What Are Overhead and Profit on an Insurance Claim?

Overhead and profit is the general contractor’s markup for coordinating a job, as distinct from the cost of the roofing, the siding or the gutters themselves. On a property claim it customarily appears as 10 percent overhead and 10 percent profit. The part almost nobody tells you: the widely quoted rule that it applies once three or more trades are involved is industry custom rather than law. No statute, regulation or insurance department bulletin publishes it, and in Oklahoma it has been argued in court and never decided. Arrowhead Roofing has worked northeast Oklahoma claims since 1987, and this is the line item that generates the most confident wrong information.

Note: this is a general explanation of a line item, not advice about your claim and not a statement about what you are owed. Whether a general contractor’s markup belongs on a particular loss depends on the policy and the facts. Arrowhead Roofing is not a licensed public adjuster and we do not negotiate claims. Nothing here should be used to decide what to ask a carrier for; that is a question for the carrier or for a licensed adjuster.

Three separate things get called overhead and profit, and only the first is what an estimate means by it.

The Short Answer

If a loss needs one trade, the work is priced with that trade’s margin in it and there is generally nothing to coordinate. If a loss needs the roof replaced, the siding repaired, the gutters run again and the interior painted, somebody has to sequence that, and the sequencing is real work with a real cost.

That is the entire logic of the line item. It is not a bonus and it is not a discount somebody is withholding from you.

The Three Trade Rule, and Why We Are Not Going to State It as a Rule

This is the section this page exists for, because the confident version of it is everywhere and it does not survive checking.

The convention says that once three or more trades are needed, a general contractor is presumed necessary and the markup follows. You will find it stated as settled fact on contractor sites, on adjuster sites, and in a great deal of forum advice.

We could not find it published by any authority. Not in a statute, not in a regulation, not in an insurance department bulletin, not in a standards document. What exists is litigation in which parties argued it, law firm surveys describing it as a rule of thumb, and trade publications reporting what insurers commonly do.

In Oklahoma specifically, it was argued in Burgess v. Farmers Insurance, decided by the Oklahoma Supreme Court in 2006. The insureds pleaded a three trade rule. The insurer denied that any such rule existed and said its adjusters decided case by case. The court ruled on class certification only, and said expressly that it expressed no opinion on the merits.

So the honest statement is that in this state the question has been raised at the highest level and left open. Anyone telling you Oklahoma has a three trade rule is telling you something a court declined to decide.

What the Published Test Actually Is

There is a legal standard, and it is not a trade count.

The reasoning courts have actually used asks whether the insured is reasonably likely to need a general contractor for that loss. Trade count is evidence toward that question rather than the question itself. A two trade job that needs genuine sequencing and a five trade job somebody could manage themselves are not automatically decided by the number.

That is a more sensible test than a threshold, and it is also less quotable, which is probably why the threshold version travels further.

Whether It Can Be Held Back Until the Work Is Done

Frequently asked, and the answer is genuinely “read the policy” rather than a dodge.

Appellate courts in other states have come out both ways, and the difference between them was the wording of the loss settlement clause rather than the principle. Where a policy was silent about the markup, one court held it could not be deducted from a payment. Where a policy expressly said such fees would not be included until actually incurred and paid, another court held it could be held back.

Both of those are other states. Oklahoma has published nothing. We checked the Oklahoma Insurance Department’s bulletin index, its 2022 bulletin on roof claims, and the 2010 Special Notice that governs how contractors may talk about claims. None of them mentions overhead, profit or markup. Two other states’ regulators have issued guidance on it and Oklahoma is not among them.

Which means the answer for an Oklahoma homeowner sits in the loss settlement section of their own policy, and that is where to look.

Where the Percentage Comes From

Worth knowing, because people assume the software decides it.

The estimating platform the industry uses does not set a figure. Its own published documentation states that the amount of overhead and profit, and how and where it appears in an estimate, is left to the estimator’s discretion or to a company’s normal practice.

So 10 and 10 is a convention rather than a computed number. It is widely used, it is what the parties in the Oklahoma case took as the customary figure, and it is not produced by a formula.

What Changes the Answer

Three things move this from general to specific.

What the loss actually involves

A roof only claim and a roof plus siding plus gutters plus paint claim are different animals. Storms rarely damage exactly one thing, which is why this question comes up on hail losses more than on anything else. Does insurance cover hail damage to siding? covers the second most commonly affected surface.

What your policy says about incurred costs

The loss settlement section is where this is decided, and the phrase to look for is whether fees are included before they are actually incurred and paid.

Whether the first number is the final number

It usually is not, on any part of a claim. The first estimate from a carrier is commonly lower than a contractor’s, going back with documentation is a normal part of the process rather than a fight, and why is the insurance estimate lower than the contractor’s estimate? covers how that reconciliation works.

What We Do, and What We Do Not Do

Especially important on this page, because it is a page about money.

Arrowhead Roofing is not a licensed public adjuster. We do not negotiate insurance claims. We provide roof inspections, document storm damage, and meet with insurance adjusters to support the inspection process.

We are explaining a line item that appears on estimates, because a homeowner who understands it can read their own paperwork. We are not telling you what to ask for. What your policy allows is between you, your carrier and, if you want representation on the claim itself, a licensed public adjuster. Our contract does reserve the right to bill overhead and profit to a carrier where it applies, and we would rather you knew that from us than found it on an invoice.

Related Questions

Why is the carrier’s estimate lower than the contractor’s?

Almost always, and it is usually scope rather than price. Why is the insurance estimate lower than the contractor’s estimate? answers the question everyone is really asking.

What is recoverable depreciation?

The part held back until the work is finished, released on a second payment. What is recoverable depreciation on a roof claim? explains both payments and the paperwork.

Is my roof covered in the first place?

Storm damage generally yes, age no, and the payment basis is the surprise. Does homeowners insurance cover roof replacement in Oklahoma? quotes the regulator.

See Also

The two answers next to this one are how the two estimates get reconciled, and what happens when the storm hit more than the roof.