What is the three-trade rule?

An industry convention, not a law: carriers often pay general contractor overhead and profit when three or more trades are needed. No statute or bulletin states it. The legal test in Florida (Trinidad v. Florida Peninsula, 2013) and Pennsylvania (Mee v. Safeco, 2006) is whether the insured is reasonably likely to need a general contractor.

Xactimate® applies overhead and profit as two separate percentages of the subtotal, so 10% and 10% add to 20%. Some contracts compound them (10% profit on top of the overhead-inclusive figure), which comes to 21%. The calculator shows both.

Can the carrier withhold O&P from the ACV payment?

Texas Bulletin B-0045-98 says ACV is replacement cost less depreciation, and that deducting O&P as well is improper. Florida's Trinidad decision says the insurer cannot deduct the entirety of O&P. Pennsylvania's Supreme Court went the other way in 2020 for ACV. Check your state before you cite.

Does a supplement get its own O&P?

Carriers often say O&P was in the original estimate. If the supplement adds trades or coordination the original did not include, it carries O&P on the added work. Say which trades the supplement adds.

Free tool · adjusters and contractors

Overhead & Profit Calculator

Count the trades, get the O&P figure both ways, see how much was withheld from the ACV check, and copy a request that cites the right test.

Trades in the repair scopeTick every trade a general contractor would have to schedule. Carriers informally look for three or more.

Estimate subtotal before O&P$The RCV line-item total, before overhead, profit and tax.

Overhead%Profit%

How the two are applied

Xactimate® applies overhead and profit as two separate percentages of the subtotal (added together). Some contracts compound them.

Depreciation on the claim%Only matters for the ACV check.O&P the carrier paid in ACV$Zero if it was withheld entirely.

Trades in scope

Meets the informal three-trade convention. The legal test in Florida and Pennsylvania is whether a general contractor is reasonably likely to be needed, so document the coordination, not just the count.

General contractor O&P

$4,900

10% + 10% of $24,500

RCV including O&P

$29,400

O&P that belongs in the ACV payment

$3,430

O&P $4,900 less 30% depreciation. Texas Bulletin B-0045-98: ACV is replacement cost less depreciation, not less O&P too.

O&P still owed on ACV

$3,430

Withheld beyond depreciation. This is the figure for the request below.

Method difference: added together $4,900 vs. in sequence $5,145 ($245 apart on this subtotal).

Request language

Request: general contractor overhead and profit on this loss.

The repair scope involves 4 trades (Roofing, Drywall, Painting, Debris / dumpster) that must be scheduled, sequenced and supervised. A policyholder in this position is reasonably likely to need a general contractor to complete the repairs, which is the standard applied in Trinidad v. Florida Peninsula Ins. Co. (Fla. 2013) and Mee v. Safeco Ins. Co. of America (Pa. Super. 2006).

Estimate subtotal before O&P: $24,500.
General contractor O&P at 20% (10% overhead + 10% profit): $4,900.
The actual cash value payment withheld $3,430 of O&P in addition to depreciation. Please release it, or identify the policy language that permits withholding contractor overhead and profit from ACV on this loss.

Please respond in writing with the revised valuation or the specific basis for declining.

Edit before sending. Check the cited cases and bulletins against your state and the policy form; this is a drafting aid, not legal advice.

Why O&P is the most argued line on a claim

General contractor overhead and profit is typically 20% of the repair cost, so on a $50,000 loss it is $10,000 that either appears or does not. Carriers lean on the “three-trade rule” to leave it off smaller claims, and on actual-cash-value payments some deduct it a second time on top of depreciation.

Neither practice has much support. The Florida Supreme Court in Trinidad v. Florida Peninsula (2013) held that a replacement cost policy must include O&P when the insured is reasonably likely to need a contractor, and that the insurer may not deduct the entirety of it. Pennsylvania's Mee v. Safeco (2006) listed the factors: extent of damage, number of trades, and building industry standards. Texas Bulletin B-0045-98 says ACV is replacement cost less depreciation, full stop.

How to use it

Tick every trade a GC would have to schedule, including debris and cleaning.
Enter the estimate subtotal before O&P and tax.
If this is an ACV dispute, enter the depreciation and what the carrier actually paid in O&P.
Copy the request language, check the citations against your state, and send it with the trade list.

Building a supplement at the same time? The supplement builder lists the lines desk reviewers strike and the proof each one needs.

Questions

What is the three-trade rule?: An industry convention, not a law: carriers often pay general contractor overhead and profit when three or more trades are needed. No statute or bulletin states it. The legal test in Florida (Trinidad v. Florida Peninsula, 2013) and Pennsylvania (Mee v. Safeco, 2006) is whether the insured is reasonably likely to need a general contractor.
Is O&P 20% or 21%?: Xactimate® applies overhead and profit as two separate percentages of the subtotal, so 10% and 10% add to 20%. Some contracts compound them (10% profit on top of the overhead-inclusive figure), which comes to 21%. The calculator shows both.
Can the carrier withhold O&P from the ACV payment?: Texas Bulletin B-0045-98 says ACV is replacement cost less depreciation, and that deducting O&P as well is improper. Florida's Trinidad decision says the insurer cannot deduct the entirety of O&P. Pennsylvania's Supreme Court went the other way in 2020 for ACV. Check your state before you cite.
Does a supplement get its own O&P?: Carriers often say O&P was in the original estimate. If the supplement adds trades or coordination the original did not include, it carries O&P on the added work. Say which trades the supplement adds.

Carrier won't move on O&P?

Send us their estimate. We write the full-scope Xactimate® estimate with O&P applied correctly and the rebuttal that goes with it, free for the first one.

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