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The Three Trade Rule for Overhead & Profit (O&P):  How Some Insurance Companies Interpret it to Their Advantage

The Three Trade Rule commonly governs when insurance companies will pay O&P for property damage claims. Though widely used, this Rule hasn’t been codified or standardized. That means that:

  • Insurance companies have room to interpret this rule as they see fit.
  • Insurance companies will look for ways to bend this rule to their benefit, using it to undercut claims or deny payment for O&P.


3 Ways Insurance Companies Can Interpret the Three Trade Rule to Their Benefit

How Some Insurers Interpret the 3 Trade Rule for O&P to Their Advantage

How Some Insurers Interpret the 3 Trade Rule for O&P to Their Advantage

The Three Trade Rule generally holds that O&P can be paid when property damage is extensive enough to require repair work from at least three different tradesmen (i.e., subcontractors). In these situations, O&P of at least 20 percent can be paid to a general contractor (GC) for coordinating and managing the multiple repairs.

While that explanation may seem relatively straightforward, here are a few ways insurance companies may interpret this Rule to limit or deny payouts for Overhead & Profit:

  1. That’s not a trade – With this interpretation, insurance companies will contend that certain subcontractors are not considered to be “tradesmen.” Consequently, the Three Trade Rule doesn’t apply. For instance, insurers may argue that roofers or others don’t constitute a “trade” due to a lack of training, credentials, or experience.
  2. The damage doesn’t require repairs from multiple tradesmen – Another way insurance companies may bend the Three Trade Rule to their favor involves arguing that only one or two (not three) trades are needed to complete the repairs. Here, the argument can include that certain repairs aren’t needed or aren’t covered by the policy or that no more than two contractors are needed to handle the covered repairs.
  3. Although two trades are needed for certain repairs, the third repair is minor – With this interpretation, insurance companies may acknowledge that a property needs certain repairs. Insurers may even agree that some of the repairs are involved and require skilled subcontractors. The insurer will also argue that one (or more) of the repairs is minor and does not need to be completed by a skilled tradesman. Therefore, the insurer doesn’t consider the third subcontractor to be a “trade” in the context of a given property damage claim.

Interpreting the Three Trade Rule: The Bottom Line

With the Three Trade Rule, the bottom line is that:

  • Insurance companies commonly bend the Rule to promote their own interests and profits. That typically means that insurers will redefine what is and isn’t a trade, will minimize the scope of the damage and the required repairs, etc.
  • You do not have to accept the insurance company’s interpretation of the Three Trade Rule as the final word in your claim.
  • You can take action to challenge insurers’ (mis)interpretations of the Three Trade Rule that are used to reduce or deny O&P by contacting the Amaro Law Firm.

Are You Struggling with an Insurer over a Claim?

If you’re struggling to get paid O&P, contact a hail damage claim lawyer at the Amaro Law Firm by calling (713) 352-7975 or by emailing us. We offer free consultations to provide you with helpful information and legal advice regarding your rights and potential claim.

Backed with previous experience working at insurance defense law firms, our attorneys are familiar with the tactics insurers use to delay, underpay, or deny insurance claims. That makes us highly effective at standing up to insurers to help our clients get the payouts they deserve.

In hail damage claims, we represent contractors and homeowners throughout the U.S.

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