Homeowner Headaches: When the Insurance Company Pushes Back on O & P

Let’s say that the worst has come to pass, and your home has sustained a significant amount of damage (as it would in a house fire). In order to make your home livable again, you need to hire a general contractor, who in turn is going to work with a plumber and an electrician in order to rebuild your home. When the bill comes due and your contractor submits it to your insurance company, the adjuster tells him or her that the company won’t pay for Overhead and Profit, or “O&P.”

Overhead and Profit, however, may recoverable if they are legitimate costs of doing business. In Parkway Assoc., LLC v. Harleysville Mut. Ins. Co., 129 Fed. Appx. 955 (6th Cir. 2005), the Court found that O&P are recoverable when the insured could “reasonably be expected to hire a contractor to repair [the] property.” As per the Tennessee Department of Commerce and Insurance’s Board of Licensing Contractors, it is reasonable to hire a contractor for any projects worth at least $25,000. In fact, the State requires that a contractor be licensed in order to even bid on projects that size. It is also reasonable when the work will require at least two additional subcontractors or tradesmen. Because Overhead and Profit are standard parts of any contractor’s bill, these should be covered by the insurance company.

What constitutes Overhead and Profit?

The contractor who works on your home repairs has expenses of his or her own. Overhead is the collection of expenses he or she has in running the business itself. That may include things like:

• Cost of materials
• Licensing costs
• Salaries and benefit plans for employees
• Rent for office space
• Marketing and advertising costs

Your contractor is also entitled to make a profit (the difference between how much the services and goods cost the contractor and how much those same good and services cost the customer); after all, he or she should not be expected to work for free.

Insurance companies may claim that these line items are actually included in the overall bid cost for the project: that is not always the case. As a policyholder, you pay premiums that include O&P, and as such, those costs should be covered. If they are not, you want an experienced Tennessee insurance dispute lawyer on your side to help.

McWherter Scott & Bobbitt represents policyholders throughout the state whose insurance companies are giving them the run around when it comes to payment. We also protect contractors who have been denied Overhead and Profit by insurers. To learn more about our services, or to work with a skilled Tennessee insurance attorney like Brandon McWherter, Jonathan Bobbitt or Clint Scott, please call us at 731-664-1340, or fill out our contact form. We have offices in Nashville, Chattanooga, Memphis, Jackson and Knoxville.