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Getting Paid for Overhead and Profit

Withholding overhead and profit have become a common practice in hail storm claims handling for insurance companies.  Insurance companies demand that overhead and profit are actually incurred before paying claims.  Considering that overhead and profit are an estimated 20% of the claim value (10% for-profit and 10% for overhead), that means that insurance companies are arbitrarily withholding 20% of the hail claim’s value.

Overhead represents all indirect costs incurred to operate a general contractor’s business, which includes office rent, insurance, staff, licenses, marketing, and advertising costs, among others.  Profit is the difference between the revenue and the expenditures in a business transaction and is used to pay the general contractor.

Both overhead and profit are necessary and legitimate costs of doing business and recoverable when adjusting a hail damage insurance claim.  However, some insurance companies will try to hold back the payment for overhead and profit.  Sometimes, they just omit it from their estimates.  Oftentimes, the insurance companies may invoke the “three trades rule,” which is a benchmark utilized by insurance companies in determining whether it is appropriate to use a general contractor and, consequently, whether overhead and profit should be part of the hail claim.  This “rule” states that a general contractor will be entitled to bill for overhead and profit, once it is determined that three trades or more are necessary (e.g. subcontractors such as electricians, plumbers, roofers) to repair or replace the claimed damage.  In other instances, the insurance companies will ask field adjusters to withhold general contractor overhead and profit until it is incurred.

Under Texas law and in other states like Pennsylvania, Arizona, and Florida, among others, the standard is if you are likely to incur the cost of overhead and profit in a hail claim, then the insurance company must pay it.  In Texas, the current view is that overhead and profit are not recoverable for a simple roofing repair because it is unlikely a general contractor will be needed without further damages (e.g, debris removal, fence damage, drywall, masonry).  Insurance companies sometimes balk at paying overhead and profit costs, but they are legitimate costs of doing business, and policyholders are entitled to collect insurance benefits to cover the costs if it’s deemed likely they are to occur.  In other words, overhead and profit should be recoverable for hail claims.

To learn firsthand about the benefits of working with the Amaro Law Firm, please fill out the form below.  The attorneys at the Amaro Law Firm have vast experience dealing with insurance companies.  In fact, some of their attorneys worked as insurance company defense lawyers before joining the firm.  Now, they work hand in hand with contractors to help property owners fight for fair and just treatment which ultimately will help contractors get paid in full for the work they perform.  When an insurance company is found to have acted in bad faith, they are required to pay reasonable attorney’s fees.  Therefore, we are only paid if we win.  Our consultations are free.  If we cannot add value to a claim, we will not take the case.