Overhead & Profit: O&P Insurance Definition & Rules

Insurers sometimes balk at paying overhead and profit on multi-trade property claims, even though the industry rule of thumb applies a 20% markup — 10% overhead plus 10% profit — whenever a general contractor coordinates roofing, siding, and other trades to complete repairs. Courts in New York, Florida, and Texas have ruled that this markup can be owed even before repairs begin, so long as hiring a general contractor is reasonably likely.

Key Takeaways

• What it is: O&P is calculated using the industry standard of 20% total (10% overhead plus 10% profit) added to the base repair estimate.
• When it applies: The longstanding three-trade rule — an adjusting rule of thumb, not binding law in most states — holds that O&P is owed when more than three separate trades are involved in a repair.
• New York precedent: Mazzocki v. State Farm Fire & Cas. Corp., 1 A.D.3d 9, 766 N.Y.S.2d 719 (3d Dep’t 2003) requires profit and overhead in replacement cost value — and thereby in actual cash value — whenever a general contractor would likely be needed.
• Florida rule: Florida’s replacement-cost statute (§ 627.7011(3)(a)) requires insurers to pay actual cash value up front, and per Mills v. Foremost Ins. Co., 511 F.3d 1300 (11th Cir. 2008), a contractor’s overhead and profit charges are included within the “cost to repair or replace” — so O&P can be owed before repairs are completed.
• Texas standard: In Ghoman v. New Hampshire Ins. Co., 159 F. Supp. 2d 928 (N.D. Tex. 2001), a federal court concluded O&P should be paid unless there is a finding that a general contractor’s services would never be necessary given the scope of work.

Overhead and Profit: Defining the Two Components

Overhead and profit are two separate cost categories a general contractor charges when coordinating a repair. Overhead covers the contractor’s operating expenses — general and administrative costs, office rent and utilities, office supplies, salaries and benefits for office personnel, equipment depreciation, licenses, and advertising.

Profit is the difference between the contractor’s costs and the price charged for the work — what allows the contractor to earn a living on the job ^[1]. The two are almost always paired under the label “O&P” and quoted as two separate numbers — most commonly “10 and 10,” meaning 10% overhead and 10% profit, charged as a 20% markup on top of the total job estimate ^[1].

How and when that markup must be paid varies by state, because the three-trade rule is an adjusting rule of thumb rather than binding law in most states ^[2].

For contractors documenting a claim, the strongest support for these costs is a clear trade breakdown showing which trades are involved, why coordination between them is necessary, and how that coordination maps to the industry’s overhead and profit framework. Citing the relevant state precedent alongside that documentation gives the file a stronger basis for approval than a bare request for the markup.

Why O&P Impacts Claim Totals and Repair Quality

Because O&P disputes are rarely about a rounding error, the dollar impact on a multi-trade claim can be significant relative to the base repair estimate. Adding that markup on top of a sizable scope changes the total claim value meaningfully, which is exactly why carriers scrutinize it closely rather than approving it by default.

Beyond the dollar figure, O&P exists because coordination work is real work. When a general contractor is not compensated for managing multiple trades on a single loss, the incentive to properly sequence, coordinate, and supervise that work weakens ^[1] — which can translate into rushed scheduling, missed punch-list items, or subcontractors working without adequate oversight.

Property owners and contractors alike have a shared interest in that markup being paid correctly: it is what funds the coordination that keeps a multi-trade repair from becoming a patchwork of disconnected work.

Frequently Asked Questions

What is overhead and profit (O&P) in an insurance claim?

Overhead and profit are two separate costs added to a base repair estimate when a general contractor is needed to manage a repair involving multiple trades. Overhead covers the contractor’s operating expenses — office rent, administrative staff, licenses, and equipment. Profit is the margin above those costs that lets the contractor earn a living. The two are almost always paired and quoted as two numbers, such as “10 and 10” ^[1].

When does the three-trade rule apply to O&P?

The three-trade rule is an industry guideline stating that O&P becomes applicable once a repair involves more than three distinct trades working on the same loss, such as roofing, stucco, and HVAC work. Fewer than three trades on a straightforward, single-scope repair typically does not meet this threshold.^[2]

Can an insurer deny O&P if repairs haven’t actually started?

Several courts have rejected that argument. New York’s Appellate Division held in Mazzocki v. State Farm Fire & Cas. Corp. that an insurer must include profit and overhead in replacement cost — and thereby in actual cash value — whenever a general contractor would likely be needed, even though the insured had not yet incurred those costs ^[3].

In Florida, replacement-cost policies require insurers to initially pay at least the actual cash value of a loss, with the remainder paid as work is performed and expenses are incurred (Fla. Stat. § 627.7011(3)(a)) ^[4]. And in Mills v. Foremost Ins. Co., the Eleventh Circuit agreed that a contractor’s overhead and profit charges are included within the “cost to repair or replace,” rejecting the position that actual cash value coverage excludes O&P ^[5].

What is the “10 and 10” rule in restoration claims?

The 10-and-10 rule refers to the industry standard of adding overhead at 10% and profit at 10% — a combined 20% markup — to the base repair estimate whenever a general contractor is needed to coordinate multiple trades on a loss ^[1].

Does the three-trade rule apply the same way in every state?

No. While the three-trade guideline is a widely cited industry rule of thumb, its application depends on state case law and policy language. Texas courts, for example, apply a standard asking whether a general contractor’s services would ever be necessary for the scope of work, rather than counting trades directly ^[2].

How to Document Your O&P Entitlement

Winning an O&P dispute comes down to documentation: a clear trade-by-trade breakdown of the scope, a record of why coordination between trades is necessary, and, where applicable, a citation to the state precedent supporting entitlement to the markup. Some insurers pay only actual cash value up front and withhold remaining amounts until repairs are performed and expenses are incurred, so obtaining and retaining a written general contractor estimate or invoice is an important part of substantiating an O&P claim ^[1].

Contractors who build this record before submitting the estimate are in a stronger position than those who request O&P as an afterthought once the carrier has already pushed back. If your insurer denied or reduced overhead and profit on a multi-trade repair, upload your policy to Justin, the free insurance policy analyzer from JustClaims — it finds and explains the clauses that control how your repair costs are calculated, so you know exactly where you stand before you go back to the carrier.

This content is for informational purposes only and does not constitute legal or insurance advice. Coverage decisions depend on the specific terms, conditions, and exclusions of each policy and the laws of the applicable jurisdiction; policyholders and contractors should consult with a qualified professional for advice on their particular situation.

Sources

^[1] What’s UP with Overhead and Profit? — United Policyholders

^[2] Payment of Overhead and Profit — United Policyholders

^[3] Mazzocki v. State Farm Fire & Cas. Corp., 1 A.D.3d 9, 766 N.Y.S.2d 719 (3d Dep’t 2003) — New York State Unified Court System

^[4] Florida Statutes § 627.7011 — Online Sunshine, Florida Legislature

^[5] Mills v. Foremost Ins. Co., 511 F.3d 1300 (11th Cir. 2008) — CourtListener (Free Law Project)