Contractor Overhead and Profit: "Three Trades" Isn't the Test

Section 5(e) of the Farmers homeowners policy that reached the Pennsylvania Supreme Court in August 2020 runs about sixty words, and the number of trades on the job appears in none of them. What the clause turns on instead is whether "it is reasonably likely that the services of a general contractor will be required to manage, supervise and coordinate the repairs."¹

Ask a room of adjusters when a carrier owes general contractor overhead and profit and most will answer with a number: three or more trades on the scope and the ten-and-ten goes in. As desk practice the count is real. Carrier estimating guidelines lean on it because it resolves fast, and a scope carrying a roofer, a drywall crew and an HVAC sub usually does need somebody sequencing them.

The count is a proxy. The two appellate courts that have looked hardest at O&P in the last fifteen years did not use it.

What the courts actually asked

Florida's Supreme Court quashed the Third District in Trinidad v. Florida Peninsula on July 3, 2013, holding that overhead and profit fall inside an actual cash value payment "where the insured is reasonably likely to need a general contractor for repairs."² No trade threshold appears in the opinion.

Pennsylvania came out the other way in Kurach, 4-3, for a reason unrelated to how many trades the repair needed.¹ Truck Insurance Exchange won because its policy named actual cash value and carved it out: general contractor fees go into the estimate when reasonably likely, but "actual cash value settlements will not include estimated general contractor fees or charges for general contractor's services unless and until you actually incur and pay such fees and charges."¹ The policyholders had water losses over $2,500 and had not repaired. Having not repaired, they had not incurred.

So one policyholder recovered O&P on an unrepaired house and one did not, and the trade count on both files was never in issue.

What you are actually arguing when you argue overhead and profit

The argument	What backs it	What you have to show
Three or more trades are on the scope	Desk and estimating convention. Neither Trinidad nor Kurach mentions a trade count.	Nothing either court asked for.
A general contractor is reasonably likely to be required	Trinidad (Fla. 2013), and the estimating half of the Kurach policy uses the same wording.	Sequencing, supervision and coordination the subs cannot do for themselves.
Your ACV clause carries no incur-first carve-out	Kurach (Pa. 2020) turned on that one sentence.	The loss-settlement page, quoted.

Where state law overrides the clause

The Kurach carve-out closes on a condition most readers skim. General contractor fees stay out of ACV "unless the law of your state requires such fees and charges be paid with the actual cash value settlement."¹ By its own wording the clause steps aside for the state.

Texas is where that shows up most plainly. The bulletin that settled the question there came out of a live dispute rather than an academic one: insurers had read the loss-settlement provision of the Texas Standard Homeowner's Policy Form B to let them subtract contractor's overhead and profit on top of depreciation, and two class actions followed. The Department of Insurance told every property and casualty carrier in the state on June 12, 1998 that deducting prospective contractors' overhead and profit from replacement cost when calculating actual cash value is improper, not a reasonable reading of the policy language, and unfair to insureds.³ The department restated that position for carriers on September 29, 2008.⁴ So the sentence that let a carrier keep O&P in Pennsylvania reads differently against a Texas file, and what moves it there is the regulator's published position, not a count of trades. Texas adjusters already know how much turns on the estimate itself, which is the fight appraisal panels keep landing in.

None of which makes the trade count useless at the desk. It remains the quickest signal that a coordinating contractor belongs on the file, and a carrier working to its own guidelines may concede O&P the moment the scope crosses three. A court reviews something else, so a file built only on the count has nothing underneath it when the carrier declines. The documentation that survives is the ordinary kind: the scope, the sequencing, and the room-by-room record of what the repair actually requires. Florida adjusters running a declared-event file are building most of it anyway.