Chip Merlin | Property Insurance Coverage Law Blog | May 20, 2019
The Colorado Department of Insurance will not be repealing its longstanding bulletin requiring that contractor overhead and profit be a part of a calculation to determine actual cash value at tomorrow’s stakeholder meeting in Denver. This is fantastic news for all Policyholders and the correct decision by those dealing with this issue in the Colorado Department of Insurance. We discussed the issue in, Colorado Overhead and Profit Issues—Merlin Law Group Files a Response for Colorado Policyholders, and noted this meeting in, How To Adjust Actual Cash Value and Overhead and Profit in Colorado—Colorado To Hold Public Forum For Comments.
I am flying to Denver to attend this important meeting and visit with Merlin Law Group’s Denver attorneys Larry Bache, Jon Bukowski, and Tim Burchard. We anticipate that the remaining discussion on the agenda may get quite emotional because many contractors and roofers feel that the insurance industry is trying to put them out of business through numerous techniques, which also includes changing longstanding replacement cost policy language.
The current notice indicates that tomorrow’s meeting will be about:
- The Division has determined that it will not be repealing this Bulletin.
- The reasons the Division considered repealing this Bulletin were as follows:
• A widespread misunderstanding of the Division’s position on Overhead and Profit (O&P) contained in the bulletin and the limits to the Division’s authority concerning O&P; and,
• Many complaints are filed with the Division alleging insurers wrongfully deny O&P and use the Bulletin to support their contention that O&P must be paid. - Through this stakeholder meeting the Division is seeking input from interested participants on how best to revise the Bulletin to clarify any ambiguity concerning the Division’s limited authority regarding O&P and to address the number of complaints received by the Division related to O&P.
Point two is very valid. I have never read the Bulletin to mean that all contractors, especially small or one-man shops supervising few people, are entitled to General Contractor Overhead and Profit. They are certainly entitled to their own reasonable and fair overhead and profit. And, this brings up the point which insurance adjusters and others seems to miss—there is no exact value as to what a reasonable and fair margin or cost is for an individual contractor’s overhead and profit. But, it has to be paid.
Generally, the bigger and more complex the job, the greater the need for contractors to have resources and associated costs to oversee, supervise, manage, fund and carry the manpower, sophistication and other costly burdens of a construction project and the larger the overhead must be and the higher the profit return needs to be to monetarily reward the effort. This is true no matter if the classification of the contractor is as a subcontractor or a general contractor. Each will have an overhead burden, and each will need a profit margin to sustain the business and reward the effort.
All roofers are entitled to overhead and profit. This seems to be a huge insurance industry fight as we speak with roofers. Some roofers are doing enough oversite and supervision of so many activities and they are providing a lot more than just roofing laborers nailing shingles on a roof. They deserve a much higher amount of overhead and the consequential profit. We proved all this in a trial we won for a roofer which I noted in, Merlin Lawyers Earn Unanimous Nebraska Trial Verdict.
So, this is going to be an interesting meeting. Not all roofers and contractors are entitled to as much overhead and profit as they would want. Still, many insurance company adjusters and claims managers are going to have to pay more overhead and profit and often, a lot more.
I hope all this effort results in quality restoration for the policyholder at fair prices to be paid for quality construction by contractors, and which are not gouging to the insurer. The policyholder is whom all of us are supposed to be helping obtain a prompt payment and a quality reconstruction of damaged property.