If you've ever looked at an insurance estimate and noticed your margin was completely gone — that you'd have to do the job at cost just to break even — there's a very good chance that overhead and profit was either withheld entirely or calculated incorrectly. This is one of the most common and most consequential issues in the roofing insurance industry, and it costs contractors thousands of dollars per claim.
Overhead and Profit (O&P) — typically 10% overhead and 10% profit on Scope of Loss reports — is a legitimate, standard component of every insurance roofing claim where a general contractor is involved. Withholding it is not just unfair. In many cases, it's a violation of the policy.
What Is Overhead and Profit, Exactly?
In the context of insurance claims, Overhead and Profit refers to the markup applied to the direct cost of labor and materials to account for the contractor's business operating costs (overhead) and reasonable profit margin. Xactimate, the software used by virtually every insurance carrier in the country, includes O&P as a standard line item. It typically adds 10% for overhead and 10% for profit to the subtotal of the estimate — resulting in a 20% total addition to direct costs.
This markup exists because insurance policies are written to pay for the restoration of damaged property to its pre-loss condition, using contractors operating in the real world — where trucks, insurance, licensing, employees, estimators, and business overhead all cost money. O&P is simply the industry's way of acknowledging that contractors aren't charities.
Why Carriers Withhold It — and Why They Can
Insurance carriers argue that O&P is only applicable when a general contractor is coordinating multiple trades — the so-called "three-trade rule." Under this interpretation, if a roofing contractor does the work themselves, without coordinating a general contractor, O&P is not owed. Carriers lean heavily on this argument to avoid paying it.
The problem with this logic is that it ignores how roofing actually works. Modern roofing projects almost always involve multiple coordinated trades: the roofing crew, a dumpster company, a gutter subcontractor, a solar panel re-installer, an HVAC tech to move the unit, sometimes a structural engineer, and more. That's coordination. That's general contracting. And that means O&P applies.
The Most Common O&P Mistakes in Roofing Claims
- O&P omitted entirely — The carrier simply doesn't include it, betting you won't notice or won't push back.
- O&P applied only to partial line items — Some adjusters apply O&P to materials but not labor, or vice versa. Both should be included.
- Depreciation applied to O&P incorrectly — O&P should be calculated on the replacement cost value, not depreciated. Applying depreciation to O&P is a common carrier tactic that compounds the undervaluation.
- ACV-only payments withheld pending contractor selection — Carriers sometimes use "we need to know who's doing the work" as a reason to delay even the Actual Cash Value payment. This is often not permissible under your policy.
How to Fight Back
The first step is getting a copy of your Scope of Loss and identifying whether O&P was included. If it wasn't, your supplement should explicitly request it, citing the scope of work that required coordination across trades. Documentation is critical here — your insurance supplement should list every subcontractor or third-party service involved in the restoration.
Carriers respond to documentation, precedent, and persistence. They're far less likely to deny O&P on a well-documented supplement from a certified Xactimate professional than they are to ignore a verbal request from a contractor they've never worked with. This is exactly why working with an Xactimate O&P specialist — rather than trying to fight it yourself — results in better outcomes, faster.
What Sovereign Does About O&P
On every supplement we build, our Xactimate Level 2 certified team reviews whether O&P was included in the original estimate, whether it was applied correctly, and whether depreciation was applied appropriately. O&P recovery is one of the most consistent sources of additional value we find — and it costs you nothing upfront to recover it. Our fee is a percentage of what we recover, which means we're only paid when you're paid more.
Are You Getting Paid O&P on Every Claim?
Let Sovereign audit your last estimate — free. We'll tell you exactly what you're missing and what it's worth.
Get My Free O&P Audit ›