Overhead and Profit: Its Place in a Property Insurance Claim

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"Arguably, there is no basis for an insurer ever to exclude the costs of GCO&P from the replacement cost calculation that is used in arriving at an ACV estimate and settlement based on the replacement cost less depreciation rule, even if the insured is not reasonably likely to incur such costs."

Following this analysis, it is a reasonable interpretation of the standard provisions in the typical property insurance policy that the costs of GCO&P should be included in every loss estimated and settled based on the “replacement cost less depreciation” rule. So in accordance with this rule of insurance contract interpretation and construction — a rule designed to protect the insured’s reasonable expectation of coverage in a situation in which the insurer-draftsman controls the language of the policy — a court would be required to construe the policy strictly against the insurer and in favor of the insured.

But as insurance industry professionals, let’s evaluate this issue in its purest sense. The most fundamental of insurance principles is the principle of indemnity. The role of insurance is to put insureds back into the same position they enjoyed before the occurrence of an insured event.

Now, just as various parts of a property contain building materials whose value cannot be excluded from ACV regardless of whether they are replaced, each part of that property also contains at least some portion of the original general contractor...


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