General Contractor O&P Depreciation 

Chapter 10 of my book, The Art of Adjusting: Writing Down the Unwritten Rules of Claims Handling, discusses depreciation and three methods for determining Actual Cash Value (ACV). Depreciation is a hotly debated topic in the insurance world. Everyone knows materials such as two by fours and roofs are depreciable. The question comes into play if intangible things such as General Contractor's Overhead & Profit (GCOP) can be depreciated. 

 

Courts vary on their interpretation of ACV, but almost all have supported the depreciation of intangibles like labor and even taxes if the policy specifically allows for it. Therefore, while a state may say “no” in this chart, if the policy allows for it, you might be able to depreciate across the board. I, again, urge you to speak with an attorney about this if there is a question.

Scroll to the bottom of the chart for more information. You can also review this chart for information about depreciation of labor. 

 

This chart is current as of the date I wrote it, but adjusters should be familiar with their state’s rules. I cannot guarantee the accuracy of the list. Because laws and regulations can change without notice, an attorney should be contacted if there are any questions regarding this chart. These materials are provided for informational and educational purposes only and do not constitute legal advice or legal opinions because I am not an attorney.

Alabama

Alabama's Senate Bill No. 268 in 2017 proposed that the “cost of undertaking” be defined as “the total cost of the materials, labor, supervision, overhead, and profit.” If enacted, GCOP should be paid for by property insurers. However, the proposal was not approved. In National Sec. Fire & Cas. Co. v Dewitt, 85 So.3d 355 (Ala. 2011), the Property Casualty Insurer’s Association of America disputed that recent certification of a class based on an obligation to pay GCOP when there are three (3) trades or more is contrary to the interests of both insurers and insureds.

Alaska

It appears that there are no applicable case laws, statutes, administrative rules, or other guidance with regard to the calculation and/or depreciation of GCOP in Alaska.

Arizona

In Arizona, ACV coverage includes any cost that an insured may incur in repairing or replacing a covered loss, regardless of whether the insured intended to repair or replace the property. The court found in Tritschler, supra. In Bond v. Am. Family Mut. Ins. Co., 2008 WL 477873 (D. Ariz. 2008), that the policy required the insured to include GCOP in the ACV payments it made. In Lukes v. Am. Family Mut. Ins. Co., 455 F. Supp.2d 1010 (D. Ariz. 2006), the court disregarded an argument that an insurer does not have to pay sales tax in an ACV payment unless the claimant actually replaces the contents.

Arkansas

Arkansas does not have any case law which defines "actual cash value." Under homeowner’s indemnity insurance policies, which did not define the term, the costs of labor could not be depreciated when determining ACV. See Adams v. Cameron Mut. Ins. Co., 430 S.W.3d 675 (Ark. 2013), which did not specifically address GCOP.
 

California

California's court found in Sarkisyan v. Newport Ins. Co., 2011 WL 5995990 (Cal. App. 2011), that the insurer must pay “no more than the ACV of the damage.” In this case, the “Actual Cash Value” is defined as “the cost of repair or replacement of the damaged property, at the time of the loss, with a material of like kind and quality subject to a deduction for depreciation and the contractor's overhead and profit. The ACV applies to the appraisal of property whether that property has sustained partial or total loss.

Colorado

In C.R.S. § 10-4- 110.8(8), Colorado's Division of Insurance clearly states its position about requiring payment of overhead and profit, even when the work is not done. It implies that if the work is done, GCOP is required unless the contractor does not include it. The insurer must consider an estimate from a licensed contractor submitted by the policyholder as the basis for establishing the replacement cost of a dwelling. There is no case law discussing to what extent the insurer must consider the estimate, but it is suggested that if a contractor includes GCOP, the insurer should pay it.

Connecticut

There are no applicable case laws, statutes, administrative rules, or other guidance with regard to the calculation and/or depreciation of GCOP in Connecticut.

Delaware

It appears that Delaware has no applicable case laws, statutes, administrative rules, or other guidance with regard to the calculation and/or depreciation of GCOP.

District of Columbia

There are no applicable case laws, statutes, administrative rules, or other guidance with regard to the calculation and/or depreciation of GCOP in the District of Columbia.

Florida

Replacement cost policies in Florida require an insurer to cover GCOP where the insured fairly needs a contractor for the repairs. The insured would be required to pay costs for a contractor’s overhead and profit for the completion of repairs the same way other replacement costs are paid by the insured. F.S.A. § 627.7011(3) requires that in RC policies, the insurer must initially pay ACV. The insurer shall pay the cost of repair while work is performed and expenses are incurred. If a total loss occurs, the insurer must pay the RC coverage without hesitation as to the depreciation in value. Although GCOP is not stated, it must be included.  See Trinidad v. Fla. Peninsula Ins. Co., 121 So.3d 433 (Fla. 2013).

Georgia

There are no applicable case laws, statutes, administrative rules, or other guidance with regard to the calculation and/or depreciation of GCOP in Georgia.

Hawaii

Hawaii has no applicable case laws, statutes, administrative rules, or other guidance with regard to the calculation and/or depreciation of GCOP.

Idaho

It appears that there are no applicable case laws, statutes, administrative rules, or other guidance with regard to the calculation and/or depreciation of GCOP in Idaho.

Illinois

In Ilinois, general contractors making repairs can charge 10% for profit. and 10% for overhead on top of the amounts they pay to their subcontractors. This is considered industry-standard. In a Windridge hail damage case, the court held that disagreement over whether GCOP is owed is a disagreement over the “amount of loss” and subject to evaluation per the policy.

Indiana

It appears that there are no applicable case laws, statutes, administrative rules, or other guidance with regard to the calculation and/or depreciation of GCOP in Indiana.

Iowa

There are no applicable case laws, statutes, administrative rules, or other guidance with regard to the calculation and/or depreciation of GCOP in Iowa.

Kansas

ACV as defined by Kansas Insurance Department is the “cost of repair or replacement of damaged property with material of like kind and quality, less allowance for physical deterioration and depreciation.” The court granted the defendant insurance company’s motion for summary judgment where an insurer depreciated the cost of labor when calculating the ACV for a covered partial loss, where the policy’s definition of “actual cash value” specifically provides for depreciation. This is true in the case of Graves v. Am. Family Mut. Ins. Co., No. 14-2417-EFM-JPO, 2015 WL 4478468 (D. Kan. July 22, 2015), aff’d, 686 F. App’x 536 (10th Cir. 2017).

Kentucky

The replacement cost less depreciation, broad evidence, and fair market value rules were varyingly applied by the state courts in Kentucky.

Louisiana

Louisiana's case Edwards v. Allstate Prop. & Cas. Co., 2005 WL 221558 (E.D. La. 2005), showed that the suit was dismissed where the claimant failed to justify the need for a GCOP. Under the RC policy, GCOP is not necessarily included within the payment of ACV of the damage to an insured before actual repair or replacement. In Parr v. Allstate Ins. Co., 2014 WL 5210902 (E.D. La. 2014), the federal court agreed with the insured that ACV is equal to RC value less depreciation, and RC value must account for the impact of Hurricanes Katrina and Rita on the costs of supplies and labor, including GCOP cost. The court found that GCOP is a pass-through cost intended to compensate the insured for the expense of hiring a general contractor. The court ruled that the insured is not entitled to GCOP because he sold his home without repairing it.

Maine

There are no applicable case laws, statutes, administrative rules, or other guidance with regard to the calculation and/or depreciation of GCOP in Maine.

Maryland

Maryland appears to have no applicable case laws, statutes, administrative rules, or other guidance with regard to the calculation and/or depreciation of GCOP.

Massachusetts

There are no applicable case laws, statutes, administrative rules, or other guidance with regard to the calculation and/or depreciation of GCOP in Massachusetts.

Michigan

Michigan follows the “replacement cost less depreciation” rule. ACV allows the deduction of depreciation but not the contractor's overhead and profit. See Salesin v. State Farm Fire & Cas. Co., 581 N.W.2d 781 (Mich. App. 1998).

Minnesota

There are no applicable case laws, statutes, administrative rules, or other guidance with regard to the calculation and/or depreciation of GCOP in Minnesota.

Mississippi

In Mississippi's case Bryant v. Prime Ins. Syndicate, Inc., No. 1:07CV1126-LG-RHW, 2010 WL 1713248 (S.D. Miss. Apr. 27, 2010), GCOP was merely referenced where the jury was instructed: “If you find that it was reasonably likely that the claimant would need to hire a general contractor in order to repair their property, then overhead, profit and sales tax should be included in the ACV calculation. The claimant would be entitled to these expenses, regardless of whether they actually repaired the property or hired a general contractor.

Missouri

Missouri's McMillin v. American Family Ins. Co., 950 S.W.2d 242 (Mo. App. 1997) case provided that an insurer was not allowed to take a 15% deduction for depreciation or overhead, but that was based on the conflict with the fire damage statutes and is not applicable to other types of damage. Hence, it is not definite whether an insurer could reduce a GCOP claim.

Montana

There are no applicable case laws, statutes, administrative rules, or other guidance with regard to the calculation and/or depreciation of GCOP in Montana.

Nebraska

It appears that Nebraska has no applicable case laws, statutes, administrative rules, or other guidance with regard to the calculation and/or depreciation of GCOP.

Nevada

There are no applicable case laws, statutes, administrative rules, or other guidance with regard to the calculation and/or depreciation of GCOP.

New Hampshire

There are no applicable case laws, statutes, administrative rules, or other guidance with regard to the calculation and/or depreciation of GCOP in New Hampshire.

 

New Jersey

New Jersey has no applicable case laws, statutes, administrative rules, or other guidance with regard to the calculation and/or depreciation of GCOP.

New Mexico

There are no applicable case laws, statutes, administrative rules, or other guidance with regard to the calculation and/or depreciation of GCOP in New Mexico.

 

New York

New York courts ruled that general contractor overhead and profit should be included in a property insurance claim when it is reasonably likely that the insured will need to use a general contractor in completing the repairs

North Carolina

It appears that North Carolina has no applicable case laws, statutes, administrative rules, or other guidance with regard to the calculation and/or depreciation of GCOP.

North Dakota

North Dakota has no applicable case laws, statutes, administrative rules, or other guidance with regard to the calculation and/or depreciation of GCOP in New Mexico.

Ohio

There are no applicable case laws, statutes, administrative rules, or other guidance with regard to the calculation and/or depreciation of GCOP in Ohio.

Oklahoma

According to Oklahoma's Supreme Court, by using the replacement costs less depreciation method, labor costs could be depreciated in determining ACV. In Redcorn v. State Farm Fire & Cas. Co., 55 P.3d 1017 (Okla. 2002), the courts held that since a roof was a “single product consisting of both materials and labor,” depreciation of the whole product, including labor, was appropriate when determining ACV.

Oregon

There are no applicable case laws, statutes, administrative rules, or other guidance with regard to the calculation and/or depreciation of GCOP in Oregon.

Pennsylvania

Pennsylvania’s case Gilderman v. State Farm Ins. Co., 649 A.2d 941 (Pa. Super. 1994), applied the general contractor’s 20% GCOP. The court found that the insurer performed its duty of good faith and fair dealing that a general contractor is required to repair the damage. In Allen-Wright v. Allstate Ins. Co., 2008 WL 5336701 (E.D. Pa. 2008), the Three Trade Rule seemingly applies. The insurer paid 5% GCOP instead of the industry-wide standard of 20-25%, to claimants covered under RC policies.

Rhode Island

Rhode Island has no applicable case law, statutes, administrative rules, or other guidance with regard to the calculation and/or depreciation of GCOP.

South Carolina

There are no applicable case laws, statutes, administrative rules, or other guidance with regard to the calculation and/or depreciation of GCOP in South Carolina.

South Dakota

It appears that there are no applicable case laws, statutes, administrative rules, or other guidance with regard to the calculation and/or depreciation of GCOP in South Dakota.

Tennessee

Tennessee has no applicable case laws, statutes, administrative rules, or other guidance with regard to the calculation and/or depreciation of GCOP.

Texas

Texas courts expect all insurers to act in good faith to bring about impartial settlement claims in determining the damages for a covered loss as required under the Insurance Code § 541.060 and §542.003 and Texas Administrative Code Title 28, § 21.203. The Department will not support attempts by contractors to charge for services not rendered nor attempts to charge twice for the payment of overhead and profit. Texas courts and the TDI clearly include GCOP as a cost that an insured is likely to incur when repairing or replacing a loss. This might be argued in conflicting policy language, but GCOP should be included in payments for covered losses, specifically when ACV is paid.

 

Utah

There are no applicable case laws, statutes, administrative rules, or other guidance with regard to the calculation and/or depreciation of GCOP in Utah.

Vermont 

Vermont has no applicable case laws, statutes, administrative rules, or other guidance with regard to the calculation and/or depreciation of GCOP.

Virginia

There are no applicable case laws, statutes, administrative rules, or other guidance with regard to the calculation and/or depreciation of GCOP in Virginia.

Washington

It appears that Washington has no applicable case laws, statutes, administrative rules, or other guidance with regard to the calculation and/or depreciation of GCOP.

West Virginia

There are no applicable case laws, statutes, administrative rules, or other guidance with regard to the calculation and/or depreciation of GCOP in West Virginia.

Wisconsin

Wisconsin has no applicable case laws, statutes, administrative rules, or other guidance with regard to the calculation and/or depreciation of GCOP.

Wyoming

There are no applicable case laws, statutes, administrative rules, or other guidance with regard to the calculation and/or depreciation of GCOP in Wyoming.