Recovery of General Contractor’s Overhead and Profit
One item of particular interest to contractors is the inclusion of overhead and profit in insurers’ payment of insurance losses. In Tennessee and in many other states, the general standard is that insurance companies must include overhead and profit in their calculation of the amount of loss when the job is of a type that a person would reasonably be expected to utilize the services of a contractor. Although many insurers have adopted a custom or practice of limiting the payment of overhead and profit to jobs involving three trades or more, there is no such requirement in the law.
For example, in a commercial roofing project that involves only one trade (roofing), it seems obvious that a reasonable property owner would be expected to hire a properly licensed and bonded general contractor to perform the work. Safety, supervision, accuracy, and timeliness are critical, and it is also crucial that the contractor performing the work be properly insured as required by the contractor licensing statutes and regulations. When a non-licensed contractor is hired to perform the work, the owner puts all of this risk.
In our view, ten percent overhead and ten percent profit is the minimum amount due. This is just made a part of the underlying replacement cash value of the loss, and courts have clarified that overhead and profit must be considered when calculating actual cash value of the loss as well.
Another factor relevant to overhead and profit are state licensing laws. For example, in Tennessee, the Contractors Licensing Act requires that any person performing work above $25,000 (with certain limited exceptions) be licensed as a contractor. Accordingly, because the law requires a contractor’s license to perform work over $25,000 and because overhead and profit must be paid when it is reasonably expected that the owner would utilize the services of a contractor, then of course it necessarily follows that overhead and profit is due and owing by the insurance company in claims exceeding that amount. In fact, our firm is presently involved in a class action against a major insurer in Tennessee regarding this very issue.
At McWherter Scott & Bobbitt, our Tennessee insurance lawyers fight to show that your loss is covered and to maximize the amount of the recovery. We are experienced insurance and trial litigators. To talk with a skilled insurance conflict lawyer like Brandon McWherter, Jonathan Bobbitt or Clint Scott, please phone us at 731-664-1340 or use our contact form. We have offices based in Nashville, Chattanooga, Memphis, Jackson, and Knoxville.
Brandon McWherter has dedicated his practice to assisting insurance policyholders with their claims against insurance companies, including claims for bad faith. He is licensed in Tennessee, Arkansas, and Mississippi. Learn More