Q

We have a question dealing with garagekeepers legal liability coverage written on a direct excess basis. Does the direct excess coverage void liability coverage altogether, or is the direct excess coverage an additional coverage that does not affect the insurer's obligation to pay when the insured is legally liable?

The case in point occurred when the insured's negligence started a fire in a customer's vehicle. Since the customer had comprehensive coverage, the customer's carrier paid for the damage; and, since the insured was legally liable, the customer's carrier subrogated against the insured. The insured's carrier denied coverage, saying the direct excess option removed liability coverage for the insured. The insured contends that he has paid extra premium for the direct excess option and that his insurer should pay for this claim regardless of that option.

Pennsylvania Subscriber

A

We agree with your insured that he has not lost his legal liability coverage. Garagekeepers coverage is based on the legal liability of the insured. When the insured buys a direct coverage option, the requirement of being legally liable is done away with, not the coverage provided by garagekeepers insurance. The liability coverage is still present because, as your insured implies, why would the insured pay extra premium for less coverage?

Under the direct excess option, the insurer pays over any other collectible insurance without regard to the insured's legal liability for the loss. So in this instance, the insurer should pay the owner for any deductible he had to pay based on the loss to his car; and, the insurer should pay the owner's carrier based on the subrogation amount.