To O&P or not to O&P...

That is the question...

O&P stands for overhead and profit and is usually included into an insurance claim when a job warrants extra work/coordination of sub crews from a general contractor.  It is extra money allowance of 10% overhead and 10% profit added to the overall claim settlement amount (20% total).  The definition of overhead and profit inclusion is "Complexity of repairs or coordination of multiple trades".  There is a lot of controversy surrounding what warrants O&P into an insurance claim.  Arguments can easily be made on both sides of the fence.  But it all comes down to how well the insurance adjuster can justify O&P inclusion into his or her file notes.

Once upon a time, insurance companies used to automatically include O&P into a job when 3 or more different trades were present in the claim.  For example, if the roof was being replaced along with: an elevation of siding and interior drywall/paint repairs, then this job would quality for O&P for multiple trades (because there would be a total of 4 different trades in this example).  This type of job is also complex (as some of the trades are contingent upon each other), which is also another reason why O&P would be warranted.  However, it only takes a few bad eggs to spoil the batch for everyone... What insurance companies were finding is that some general contractors would purposely hire additional sub crews to perform miniscule/unnecessary tasks (such as hiring an HVAC tech solely to unhook the furnace cap during a roof replacement) or hiring a window installer to replace an exterior window screen, just so they could bill the insurance company for O&P.  It is for this reason, that most insurance companies will look for "complexity of repairs" as another area to consider O&P.

So how could an adjuster justify coordination of multiple trades properly in his or her file notes?  You could take the approach of:

"Overhead and profit is warranted on this job due to coordination of multiple trades and complexity of repairs.  This job has complexity due to the need to coordinate between the roofing, siding, drywall and painting subcontractors and the homeowner.  The painter cannot begin his work until the drywall subcontractor has finished his work and the mud is dry.  The drywall subcontractor cannot begin his work until the roofing subcontractor is finished with his work and the roof stops leaking.  All of this has to be coordinated with the homeowner’s schedule, as interior access will be necessary to complete the repairs; thus adding complexity to the job."

Feel free to paraphrase, but if you want to sound like a smarty pants and get management off of your back about your settlement decisions, then this example would be a good place to start in how you should structure your logic within a file note.  Of course your photographs should also support justification of overhead and profit as well.

What should I do if I am not sure if a claim warrants overhead and profit?

You should review any settlement/coverage questions with your manager.  But if your manager is not available and you are out in the field ready to make an on-site settlement then INCLUDE IT!  If you are on the fence and there is any question in your mind at all about including O&P into a claim; then just include it!

You are more likely to get in trouble for not paying O&P when it should have been warranted, than vice-versa.  There is an old saying that one of my old managers loved to throw around at the office "The tie goes to the runner!"  It is just good customer service to include O&P as much as you can justify it.  This will make the contractor happy, and in turn will make the homeowner happy; because that is just one less step that the homeowner will have to deal with.  Homeowners HATE having to ask the insurance company for supplemental payments!  The same cannot be said for the contractor ;)

Also think of it this way.  If overhead and profit is included in the claim that you are adjusting, then you have a greater chance for the claim to reach eligibility for percentage file billing.  Which is more money in your pocket!  Everyone loves more money! It's a win-win situation!  Just be sure you are not going crazy with it and that you can reasonably justify your thought process within your file notes.  Un-ethical billing on your files can lead to a quick release from the storm and a probable DNR or (do not rehire) black-listed to your employment.