A familiar issue that keeps arising when policyholders are filing homeowners and flood insurance claims is whether the insurer will pay general contractor overhead and profit on a property claim. General contractor overhead and profit are often estimated at 20 percent of the total estimate. This 20 percent is generally thought to cover a general contractor’s operating costs plus the profit the general contractor usually receives. When a policyholder files a flood and/or homeowner’s claim, the question arises as to whether GCOP is owed and whether GCOP should be included on an initial payment of an ACV claim.
If you have been through a recent hurricane in Louisiana, and are now dealing with your insurance company, you may be getting frustrated by the number of questions regarding your claim. The legal team at Gulf Coast Insurance Attorneys, understands your frustration and anxiety about getting a fair settlement for your damages. If you are stuck between your insurance company refusing to pay general contractor overhead and profit, and your contractor insisting on it, you may not know what you should do. We can help you through this, and many more issues associated with getting your claim paid in a fair and timely manner.
What is the General Rule of Thumb for General Contractor Overhead and Profit?
A longstanding “rule” used by insurers, is that when three or more trades will be used in the rebuilding or repairing of the property, a general contractor is necessary, and the general contractor is entitled to overhead and profit. The general contractor oversees the entire repair process, in addition to perhaps doing some of the repair work as well. There is a significant problem with this “rule,” however, in that there seems to be no legal basis to support it in most states.
When you consider that this overhead and profit is the way general contractors are paid, an insurer that withholds GCOP until repairs are complete puts the property owner in a difficult position. In a replacement cost policy, this money should definitely not be held back, but in an actual cash value policy, the ACV of the damaged home is calculated by deducting the applicable depreciation from the full replacement cost.
Therefore, the question becomes whether general contractor overhead and profit should be depreciated. The replacement cost from which depreciation is deducted to arrive at actual cash value generally includes costs that are “reasonably likely to occur” during the replacement or repair of the home. A Texas federal court said this definitely includes GCOP as well as taxes, therefore, should be included in an ACV as well as RC claim.
The state of Louisiana has had split decisions regarding general contractor overhead and profit. One Louisiana case (Edwards v. Allstate Prop. & Cas. Co., 2005) was dismissed because the plaintiff failed to identify circumstances that demonstrated the need for a general contractor. Yet in another case (Nguyen v. St. Paul Travelers Ins. Co., 2007), the insurer failed to pay GCOP on an ACV policy, and the federal court ruled in favor of the policyholder that ACV is equal to RC value less depreciation and that RC value must account for the impact of Hurricanes Rita and Katrina on the costs of materials, labor, and GCOP.
The issue of whether a general contractor is entitled to overhead and profit from an insurance company when repairing damage from a hurricane and/or flood is one that will likely continue to be debated. It is generally believed that GCOP should be paid by the insurer unless it is found that given the scope of the work a general contractor would never be necessary.
Even if this is true in your own case, your attorney could make the argument that when you factor in the premiums to be paid as a result of the replacement cost of the property, overhead and profit are already factored in. And, while insurance companies may balk at paying GCOP, it is definitely a legitimate cost of doing business with your contractor. As such, as a policyholder, you are usually entitled to recover this cost from your insurer.
How an Attorney from Gulf Coast Insurance Attorneys, Can Help You
It can be disheartening to end up fighting with your insurance company on every single issue as you attempt to get a settlement that actually covers your cost to repair or replace your home following a hurricane and/or flood. If general contractor overhead and profit are a necessary part of the repair or rebuild of your home, then you want your insurer to pay. Unfortunately, insurers are masters at wiggling out of paying part or all of your claim.
Insurance companies care about their financial bottom line and little about your financial health or future. It can be extremely beneficial to have an attorney from Gulf Coast Insurance Attorneys on your side and in your corner. We will fight for our rights aggressively, working hard to ensure your insurer pays you what you need and are owed to move forward with your life. Contact Gulf Coast Insurance Attorneys today for a free consultation.