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Last Post 11/25/2009 1:35 AM by  rickhans
Three Trade Rule for O&P
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William S Cook
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11/20/2009 1:11 PM

    Rules of thumb with no validity should not be a part of our industry,

    The rule of three trades being necesary for a repair to cause the inclusion of Overhead and Profit on payment of a loss.  I have been around campus for quite a few years and have usually applicd that logic to establishing the entitlement to the O&P provisions.  I challenge the old timers to show me where that logic originated or who originated it.  I seem to recall in past readings that a SF claims examiner in the midwest denied O&P for lack of three trades in a repair settlement and it has been adopted as an industry standard.  Why not two trades/  Why not four trades?  Things are quite in the forum so this should create some dialog.

    William S Cook

    Florida PA

    William S Cook Public Adjuster/Umpire/Appraiser
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    ChuckDeaton
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    11/20/2009 4:20 PM
    Lets go back a bit, first will someone define a "trade". To qualify as a "trade" does the practitioner need a license?
    "Prattling on and on about being an ass with experience doesn't make someone experienced. It just makes you an ass." Rod Buvens, Pilot grunt
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    Ol' Ghost
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    11/20/2009 4:49 PM
    It started out on the theory that the Insured could reasonably handle calling out two maybe three tradesman for a typical small loss. For example our old friend, the peril of Wind & Hail. The roof is damaged, the Insured can call the roofer. Also, the fence blew down, so a simple call to the fence company is within a reasonable persons capability. The A/C condensor has some dents, so he can call the A/C company to come out to comb the fins. That's the magic three trades, but the whole loss is within the reasonable capabilities of the Insured sitting down and calling the local tradesmen. So, the application of O&P is not reasonable to be included.

    Next comes the interior water loss. There is damage to a ceiling, a couple of electrical fixtures, and some attendant carpentery. Three trades involving a ccoordination of the work and the Insured, while a normal capable person, cannot be reasonably expected to arrange the activities of the tradesmen, so the services of a coordinator, sometimes called a General Contractor is needed. Now, the General Contractor is due a fee. That fee has traditionally been set at 20-21% of the various subcontractors total bills.

    That's what I was taught.

    Ol' Ghost
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    Tom Toll
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    11/20/2009 6:36 PM

    You drove the nail straight in Ghost. That's the way it is and should be and has been all the years I have been doing this mess.

    Success is not final, failure is not fatal: it is the courage to continue that counts.
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    Leland
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    11/20/2009 7:15 PM
    It's a guideline, not a rule as far as I'm concerned. If an adjuster has a claim with one or two trades, and he or she takes about one second to consider whether a general contractor is necessary, then a good faith adjustment has occurred.

    Don't put yourself in a situation where you are being deposed on a $200,000 two trade loss and you have to admit you never even considered allowing for a general contractor.

    Considering 10 & 10 and deciding it's not needed = good.

    Not bothering to consider it for at least one second = bad.

    Its theoretically possible that a two trade loss would need a general contractor, but I can't think of two many examples.

    How about wallpaper on a 30' wall?

    Would it be reasonable to pay for a general contractor (to set up scaffolding?)

    I don't know the answer to that particular example, but I do know that thought needs to go into our decisions.

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    dcmarlin
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    11/20/2009 8:37 PM
    I agree with ya'll. You have to look at the job as a whole, as well as the capabilities of the insured, and not just number of trades.

    Let's say you have a small water leak in a bathroom. You have a drywall repair and painting as well as electrical, to remove and reset a light fixture, and plumbing to remove and reset the toilet. Although you have four "trades" involved, most will have a "man with a pickup" complete the entire job. Thus, in most situations, I see no reason to add O&P.

    Now, you have a claim with the same four trades involved but in an apartment building damaging 20 units. In this case, O&P is probably warranted as a GC should be used due to the coordination required.
    Gimme a bottle of anything and a glazed donut ... to go! (DLR)
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    Bobabooey
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    11/20/2009 10:19 PM
    They don't care about what is right. They just want more money for nothing. The push is to put O&P on roof claims so the roofers can say "look at that 1 inch water stain by the fireplace. That is paint drywall and insulation damage. Now you owe me 20% more on the $20000 roof I am replacing". Just more theft.

    Why not just let contractors and PA'S write the estimates to begin with? Because we would be gutting every house that had a roof leak.
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    jdacree
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    11/20/2009 10:51 PM
    Two trades, three trades, no trades, whatever, In the first case as someone mentioned above contractors and PA's want that in the claim. They get paid on the total soze of the claim, as do some SANTA CLAUSE adjusters. Avrice is and will be a part of any business dealing where the compensation is based on the dollar amount of the transaction.

    Now as to how O&P should be allowed, Ol ghost gave a good explanation of a need to coordinate activities between groups of workers, which is quite correct. Some person GC or otherwise is going to have to stay on the phone and keep the ball rolling, that time is worth something.

    Someone mentioned that some guy in a pickup truck is going to do all of the work. That guy in the pickup, if he has sheetrock repair, tape and float, then oil based paint is going to make multiple trips both to the job site and forthe materials may have to go to mutiple locations to get the materials. As with the GC that time is worth something.

    Someone mentioned that you have to look at the capabilities of the insured. Old Aunt Martha, that only has a need to cut up and haul off the tree that crushed the outhouse (which has not been used in 40 years), has absolutly NO CLUE what to do, so she calls her nice nephew that can get anything done. His time is worth something even though he wold never dream of charging her, or telling her to call and hire a GC.

    In all of the cases above, a coordination of activities has to take place to get the property repaired. In the examples above we have multiple trades, few trades and no trades, but the basic concept of the need to coordinate is present. Also all of the discussions, save one, indicates a need for the adjuster to determine the amount of coordination required.

    That need for determination on the site by the adjuster eliminates any possibility of standardization. I feel as was stated above that the adjuster has to THINK and analyize each claim. With that action he can follow another unwritten rule if this was his policy and his property, what fair and reasonible decision would he make based on all of the items to consider.
    Jim Acree Stupidity is the art of not trying to learn Ignorance is the lack of opportunity to learn I am ignorant
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    Ol' Ghost
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    11/20/2009 11:16 PM
    Jim, while you were composing this post, you should have been on the phone setting an appointment to try and sell another roof. If your boss finds out you're here, he'll be pissed. Then, you will be back home with lots of spare time to compose CADO entries.

    Ol' Ghost
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    jdacree
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    11/20/2009 11:51 PM
    Ol Ghost, I am multi-facted. I set two appointments while composing. My "Boss" already knows that I am on this site, and getting a balanced set of answers relative to what I see in the field. While being uncomfortable with my quest for knowledge, from outside the "clan" he is aware of my position. The company pays me a commision for what I sell. They supply advertising literature, and maintain a company web site for tracking leads and sales. They pay to put thier logo on my truck and polo shirts with thier name on it. I pay all other sales related expenses. Based on the above I am self employed, and he is aware that if he does not like the way I perform my duties, or I do not turn in my paperwork to suit his guidelines he is free to cut me loose. In all other aspects of how I go about doing my business, he can keep his opnion to himself, and he has been told that in more than one conversation.

    He is well aware that I do not use the standard tatic employed by some roofing salesmen of marking up everything on the roof then asking the adjuster to tell me what that is if it ain't hail. I will not stand in public and act that ignorant.

    I feel that my independence and maverick attitude have offended you. For that I am sorry in that we have never met, in other than honest conversation. Should we ever have to meet in our diverse capabilities, on a roof, I will surly endeavor to stay on the upslope from you. I do thank you and all of the others that have responded to my various questions and comments. I AM obtaining the goal that I came to Colorado for, that being to learn as much about what wind and hail can do to a roof and other structures as I possibly can. I do not care where that education comes from, either contractors or adjusters. I feel that I have the intelligence to seperate the BS from the fact, and then apply that fact to the needs of all parties involved.

    Opps there goes the phone. may be another appointment, Acree out, good night.
    Jim Acree Stupidity is the art of not trying to learn Ignorance is the lack of opportunity to learn I am ignorant
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    Ray Hall
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    11/21/2009 1:47 AM

    I think I disagree with all the post. Unit prices came about in the late 1950's. The first auto estimates I looked at were parts, labor and material. The first property estimates from the pick up truck carpenter who did much of the small repair work in this area was in board feet, # of nails . gallons of paint , rolls of wallpaper and hours of labor, then profit was the last figure.

    Contractors began calling themselves "insurance conttractors" and worked on 1/3rd material cost, 1/3 labor and 1/3 profit in an metro area like greator Houston or 1 hours drive. Extra expense was an add on. The price list were published by all the "insurance contractors" and sent to ever property adjusters office and the adjuster used one or more of these published prices to write his scope to see if the contractor was between the ditches. In the event of a large catastrophe about 15 to 20 contractors and asjusters met as soon as the wind stopped and worked up a price list for all the local and all of the out of town adjusters to use as a price guide. 

    In the late 80's we began to see a few DOS programs that were only word processors with an adding machine. All were designed to have the unit price changed by the estimator. We were still thinking 1/3, 1/3. 1/3 after doing it this way for over 30 years. Then along comes one program for adjusters that added a feature from the contractor program called O&P of 10+10=21% or 20% take your choice. The vender system recruited from the contractor ranks and this program with a unit price of .45 to clean a small ash tray became very popular for the "complete estimate"

    Catastrophe adjusters, were brain washed by the vendors and carriers by rejecting files that was not  the most used  contractors estimate as it was not in the correct data base, therefore it was incorrect. Very qualified adjusters were not permitted to change the data base on a very problomatic loss to get it closed.

    This monster was created by the carriers, who hired adjusters to stop the phone's from ringing and leave the hard cases for the clean up team after the worms fell by the wayside. In my opine ever software program has all the cost in the unit price(if the unit price is the market price) and ever estimate should have a gross profit of between 30 to 40% for all general contractors who are begging for this work. This lawsuit should have never been filed as it was not the contractors who would not do the work. It was the greedy insurards who wanted "more" of the dumb insurance carriers money, who allowed this myth to grow into this monster "its owed if you have three trades"

    I have the feeling I may see this post on the big screen someday soon.

     

     

     

     

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    OkcLarryD
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    11/21/2009 4:04 PM
    Hang in there, Jim.

    Put on some more o' that "tough-skin" ointment and call us in the morning.
    Larry D Hardin
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    Joe
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    11/21/2009 6:47 PM

    I first heard of this concept in 1979. Where and when it originated, I don't know. It had probably been around for years even at that time.

    I have always been of the impression that the reason for this "rule" was that an insured did not need a general contractor to plan, schedule or run the repairs if only two trades were involved, unless the repairs were very unusual or complicated.

    For instance, if the only damage is to a roof, the insured surely doesn't need a general contractor to get the roof replaced. Just call a roofing company.

    I, personally, don't have a problem with this procedure.

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    jdacree
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    11/21/2009 9:19 PM
    Thanks OKCLARRYD. I bought my tough skin ointment in 55 gallon barrels after my fist post and question on this site. The person that I responded to , realizing it or not, has given me the best crash course on overcoming objections that I could ever find. While NOT ANSWERING one question in the posts of his that I have read, the information presented is very good at presenting every argument that can be consieved to NOT answer a question. I will continue to enjoy posting on this site, asking questions, exploring my new information (knowledge) in the form of input to a question, and comparing the information gained here to the information from the "blue team". As stated I am here to learn, and I am learning a lot. Thanks again for all of the answers, constructive critism, and the crash course in overcoming objections.
    Jim Acree Stupidity is the art of not trying to learn Ignorance is the lack of opportunity to learn I am ignorant
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    BobH
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    11/21/2009 10:36 PM

    Bob H
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    RJortberg
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    11/23/2009 1:25 AM

    Jim- my only advice is to use spell check (and sunscreen, but that one came from a Dave Berry commencement address, so I can't take credit for that). To use spell check, you go to edit your post (once posted), and then click on the spell check icon. Good luck with your time in the barrel.

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    johnpostava
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    11/23/2009 9:06 AM
    Let this adjuster/software guy chime in (since I have been asked by many attornies on this subject). I have done research and can not find the "Three Trade Rule" (TTR) printed anywhere in insurance-related references. The TTR is just a rule-of-thumb but still needs to be considered on every loss. At the least it should be mentioned (sometimes in detail) in every narrative and/or short form report (why it was included or not included in the estimate). I have paid OP on one-trade losses if the NI (named insured) is too old to adequatly manage the repair and if it is commecial loss where additional supervision was needed. Here's a question for the PA's out there...If an NI has a multi-trade loss and is managing his or her own repairs, how much, if any, should the NI be allowed for "overhead" to manage the job (call the vendors, be there for their appointments, examine their progress, etc.)? Of course, no NI can "Profit" from an insurance claim but what about their efforts and time bringing the risk back to pre-loss condition without the use of a general contractor?
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    claims_ray
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    11/23/2009 10:24 AM
    I have paid an insured the typical 10% overhead on a claim for acting as their own GC. The only way I was allowed to do this was with a signed affidavit. The insured had requested profit as well however as John has noted above this was not going to fly.

    How many of you are ever instructed not to include O&P unless or untill a contractor is involved and it is being requested or if the claim is over a certain dollar amount with TTR?

    Should this be or should it be the adjuster's common sense and experience to include O&P if and when they believe it is necessary?

    Is O&P limited to GC's or all contractors?

    I have come across numerous contractors that have not requested O&P and one that requested it after submitting his bill for work that had already been performed.
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    Leland
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    11/23/2009 10:32 AM
    Some carriers are perfectly comfortable paying 10 and 10 to the insured's that do their own work. The theory is that the value of the loss is equal to what a contractor would charge, everything included. Under this way of thinking, the insured is not "profiting" from the loss, just getting paid the market value.

    Maybe it's based on California case law, I don't know. (Maybe I will find out).

    I know some carriers that will pay only the "O" but some will pay both the "O" and the "P" to owner builders.

    It's always a good idea to ask the carrier how they want it done.

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    Ray Hall
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    11/23/2009 11:05 AM

    Why should the insurance property re-contruction industry be any differant from most all of the other services offered to the public. Have you ever seen an auto estimate on a collision with O &P added to the bottom line. Have you ever seen a legal fee bill with O & P added. I still contend the price guides, the sodtware estimating programs used in insurance property claims have  a  built in P & O of at least 33.3 for profit & overhead. If they do not ever loss since the first computer generator estimatge is if prima facia evidence of deliberate fraud by the carriers and price fixing which is also deceptive trade practice.

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