Several years ago I discussed a Sixth Circuit Court of Appeals case where the court determined that general contractor’s Overhead and Profit were recoverable if the insured would “reasonably be expected to hire a contractor to repair its property”  See Parkway Assoc., LLC v. Harleysville Mut. Ins. Co., 129 Fed. Appx. 955 (6th Cir. 2005).  You would think that this Sixth Circuit Court of Appeals opinion would have encouraged insurance companies to do the right thing and include Overhead and Profit in their estimates and settlements, at least in the state of Tennessee.  Surprisingly, I still regularly receive calls about insurance carriers that are not paying Overhead and Profit  (O&P) correctly. I hear that some companies do not pay O&P on ACV payments, but will pay for it after the work is complete. Some companies will withhold O&P from specific areas of the estimate like roofing, cleaning, mitigation, or debris removal. Some companies refuse to pay O&P all together, by stating that the claim isn’t “complex” enough to warrant  O&P. Some companies even try to avoid paying O&P to restoration or mitigation companies after a fire or water loss. To be clear, all of the above examples are not only wrong, but they could be acts of bad faith by the carrier.

In Tennessee, there is only one question that must be answered to determine if O&P is owed and that is this – – is it reasonably likely that the insured would be expected to hire a contractor to repair the property? So who determines when it is reasonably likely that the insured would be expected to hire a contractor?  Thankfully for policyholders in Tennessee, The Tennessee Department of Commerce and Insurance has answered this question for us. Effective January 1, 2014, the Board of Licensing Contractors issued a bulletin that clearly spells out when a policyholder is reasonably likely to hire a contractor. The bulletin can be found here.
To sum it up, a contractor is required on any project of $25,000 or more (excluding masonry) or when there will be more than one subcontractor or tradesman on the project. The Board of Licensing went so far as to say that a contractor’s license is required before anyone could even make a bid or given an estimate on a project of $25,000 or more or any project that will involve more than one subcontractor.  The contractors who have taken the extra time and steps to become licensed should be compensated for their operating expenses (Overhead) and should be allowed to make a Profit from the work they have performed.

Do not let insurance adjusters or agents tell you otherwise – – O&P is not already built into Xactimate line item estimate pricing.  Also, remember that the premiums you pay are based on a Replacement Cost Value and the software your agent uses to calculate the replacement cost will include the charges for General Contractors Overhead and Profit. Since you are already paying a premium for O&P, you should be compensated for O&P on any loss where there are at least two tradesmen (subcontractors) needed for the repairs and/or on any loss that is in excess of $25,000 and this does not exclude mitigation or restoration services. If your restoration company is also a licensed contractor, they are owed O&P for their services as well.

The last time I posted about this I received multiple calls from contractors around the State.  If  you are a contractor or roofer and you’ve had difficulty recovering payment of O&P, feel free to call – – I’d love to hear from you.

 

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Photo of Brandon McWherter Brandon McWherter

J. Brandon McWherter is a Nashville-based lawyer and member of McWherter Scott & Bobbitt PLC, which has offices across the State of Tennessee and elsewhere across the Southeast.  Licensed in Tennessee, Arkansas, Mississippi, and numerous federal courts, he has dedicated his practice…

J. Brandon McWherter is a Nashville-based lawyer and member of McWherter Scott & Bobbitt PLC, which has offices across the State of Tennessee and elsewhere across the Southeast.  Licensed in Tennessee, Arkansas, Mississippi, and numerous federal courts, he has dedicated his practice to assisting insurance policyholders with their claims against insurance companies, including claims for bad faith.

For well over a decade, McWherter’s practice has been focused almost exclusively on the prosecution of first party property insurance claims for policyholders.  His interest in this area of the law first started around 2003 when a tornado struck Jackson, Tennessee, where he lived and worked at the time.  Since then, McWherter has represented hundreds or thousands of policyholders whose claims have been underpaid or denied.  He advises and advocates for owners of commercial properties, industrial facilities, residential properties, churches, business owners, and other insurance policyholders.

Since he started counting in 2013, McWherter has assisted his clients in obtaining well in excess of Two Hundred Fifty Million Dollars ($250,000,000) in settlements, awards, and jury verdicts against insurance companies.

In 2018, McWherter was inducted as a fellow in the American College of Coverage Counsel, which is an invitation-only organization designed to facilitate and encourage the association of lawyers who are distinguished for their skill, experience, and high standards of professional and ethical conduct in the practice or teaching of insurance coverage and extra-contractual law and who are dedicated to excellence in this area of practice.

McWherter has been featured as a “Super Lawyer” or “Rising Star” by SuperLawyers every year since 2010.  Since 2013, he has been selected each year  for inclusion in U.S News and World Reports’ The Best Lawyers in America in the field of Insurance Law.  He also enjoys an AV Preeminent ranking by Martindale-Hubbell for legal ability and ethical standards.

Mr. McWherter is a lifelong Tennesseean and received his law degree from the University of Memphis. While in law school, he was a member of the University of Memphis Law Review, and served on the Editorial Board as Notes Editor.

In advocating for clients, McWherter has trudged through fire scenes and crawled storm-damaged roofs, quizzed consulting construction experts and experts for hours on end, and deposed and cross-examined hundreds of adjusters, experts, consultants, and other professionals within the insurance industry.  He reads insurance policies nearly every day and has a working knowledge of the customs and practices of insurance companies in investigation, estimating, and payment of claims.  McWherter counsels clients on presentation of claims, assists in compiling the evidence necessary to validate the amounts owed, and then enforces his clients’ rights, if necessary, via the judicial system and other alternative dispute resolution options, such as appraisal.

Several of McWherter’s cases have developed the law governing insurance disputes in the State of Tennessee, most recently including the Tennessee Supreme Court’s 2019 decision in Lammert et al. v. Auto-Owners Ins. Co., which held that insurers may not depreciate the costs of labor in determining their actual cash value payment obligations when the policy does not clearly allow it.

When not working, you will usually find Mr. McWherter with his wife, Angela, and his two daughters. He is an avid golfer and a lifelong bass fisherman, neither of which he does as often as he would like.

Practice Areas

  • Representation of policyholders in claims and litigation against insurance companies
  • Bad faith insurance litigation
  • Insurance-based consumer class actions

Professional Associations

  • Tennessee Bar Association
  • Arkansas Bar Association
  • Mississippi Bar Association
  • Tennessee Trial Lawyers Association
  • American Trial Lawyers Association (past member)
  • American Bar Association (past member)

Education

  • B.S.B.A. – Union University (1998)
  • J.D. – University of Memphis (2001)

Bar Admissions

  • Tennessee
  • Mississippi
  • Arkansas
  • Fifth Circuit Court of Appeals
  • Sixth Circuit Court of Appeals
  • Eleventh Circuit Court of Appeals
  • United States District Court for the Western District of Tennessee
  • United States District Court for the Middle District of Tennessee
  • United States District Court for the Eastern District of Tennessee
  • United States District Court for the Northern District of Mississippi
  • United States District Court for the Southern District of Mississippi
  • United States District Court for the Eastern District of Arkansas
  • United States District Court for the Western District of Arkansas
  • United States District Court for the Northern District of Illinois
  • United States District Court for the Central District of Illinois
  • United States District Court for the Southern District of Illinois
  • United States District Court for the Western District of Texas
  • United States District Court for the Eastern District of Michigan
  • United States District Court for the Western District of Wisconsin