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:

  1. The Division has determined that it will not be repealing this Bulletin.
  2. 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.
  3. 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.

Thought For The Day

It were not best that we should all think alike; it is difference of opinion that makes horse races
—Mark Twain

  • Kyle Larson

    Thanks for taking the time to show up at DORA meeting yesterday. I am sure your voice, combined with the voice of other attorneys that have chimed in on this issue, are a large part of the reason DORA is slowing down on this issue and taking the time to try and get it right.

    • Chip Merlin


      It was hard to keep quiet for me. The one attorney for the insurance company that spoke, Jon Sands, is a fine gentleman. But, he clearly does not know what he is talking about and simply recited what some insurers have simply made up about ACV and RCV. I spent time last night going through agent and insurer teaching videos just to show how wrong he is from the mouths of people in the insurance industry. Lawyers very fine lawyers for insurers will argue and create propaganda of just about anything to help get their clients what they need–even if it is not what their own clients have said internally or publicly.

      I felt the contractors, roofers, public adjusters and a lay policyholder did a fantastic job explaining the situation. I could have been in Timbuktu and they still would have carried the day. My hat is off to them for taking their time and showing up because it meant a lot for all us trying to do the right thing. .

      United Policyholders had adjunct insurance professor and lawyer, Damian Arguello, speak for them. He is a former insurance company adjuster and flatly refuted what Sands tried to argue because no adjuster is taught in training to withhold O&P in a calculation of ACV–it is non-sensical to do so.

      General contractor overhead and profit may not be payable on a simple and small construction job. All contractors and roofers are entitled to their own fair and reasonable overhead burden and profit margin depending on the service provided and the type of job performed. To be fair, some of it may be subject to depreciation when calculating to an actual cash value payment. But, it cannot simply be withheld which is what some, not all, insurers are wrongfully advocating and which all regulators should prevent and even penalize because it is simply wrong when considering historical notions of actual cash value. .

  • Jim Johnson

    In reading you comment on overhead and profit, I agree that roofers like all contractors are entitled to a fair margin of overhead and profit. However, the using Xactimate pricing without adding extra O & P, for the roofing items, usually provides an adequate profit on most jobs. In fact many roofers will upgrade to impact resist shingles, and absorb the many of the deductibles without extra overhead and profit; this is especially so, if the roof decking has to be upgraded for code. Other items, such as screens, guttering, interior repairs the amount of profit is not so much and extra overhead and profit should often be considered. One reason the insurance industry won’t include it on those items separately is the for the legality of doing it and not paying it on the roofing itself.

    On the above statement I am referring more specifically to the hail and wind prone states that I have experience with. This includes much of the Central Midwest, Texas, the Southeast including much of Florida.

    However, in the discussion on small contractors without as many overhead items such as office space and estimators etc. There seems to be feeling amount people following this post and with the entire insurance industry that O & P is not needed. When, it is often needed even more, even with one person doing the majority or all of the repairs. it takes just as much time to set-up tools and a work plan for separate trades such as drywall, trim, carpentry, paintings on a small jobs as it does a large job. the insurance industry routinely underpays their customer on these smaller jobs. This occurs because their customers are not willing to, or it is unfeasible for them to be able to fight the low-ball estimates…

  • Jim Johnson

    PS: I am pleased that the Colorado Insurance Department made the correct decision in not reversing their position on the O & P to be paid on the ACV settlement, It was clearly the right decision and Chip your extra efforts are to be applauded!