Insurers who issue liability policies that include self-insured retentions (SIRs) have limited obligations to their insureds unless and until the damages and claim expenses exceed the SIR amount. So, what happens if the insured does nothing to defend themselves, resulting in the entry of a default judgment in an amount exceeding the SIR? Under Georgia law, the insurer may not have to worry about getting stuck with the bill when their insureds fail to fulfill their contractual obligations, at least according to the Eleventh Circuit.
In Ausborn v. Illinois Union Ins. Co., No. 24-11315, 2024 WL 4976324 (11th Cir. Dec. 4, 2024) (unpublished), the Eleventh Circuit considered an insurer’s liability for a wrongful death default judgment entered against a Georgia city’s jail officers. Illinois Union issued a policy to the city that provided up to $7 million in coverage, subject to a $150,000 SIR. The policy stipulated that the insured had the duty to defend. The insured failed to do so, and the court entered a default judgment against the officers for $7 million.
Ausborn, the decedent’s representative, then filed a directed action against Illinois Union to collect the default judgment. Illinois Union moved to dismiss, arguing that the city breached the condition of the policy that stated the insured had the duty to defend any claim that falls under the policy, and the insured is responsible for damages and claim expenses up to the SIR limit. The United States District Court for Northern District of Georgia agreed and granted the motion to dismiss. Ausborn v. Illinois Union Ins. Co., No. 1:23-CV-02925-JPB, 2024 WL 1896414, *6 (N.D. Ga. Mar. 29, 2024). The court looked no further than the plain language of the policy to come to its conclusion. The Duty to Defend Condition stated, “[The Insured] ha[s] the duty to defend any Claim to which this insurance applies and shall be responsible for the Damages and Claim Expenses up to the Retention Limit.” Id. at *3. The policy also stated coverage is subject to the conditions of the contract. Id. The court determined the Duty to Defend Condition was an unambiguous condition precedent, which, in the context of insurance contracts, “must be performed before policy coverage is triggered.” Id. Because the city failed to defend in any way, Illinois Union was not required to pay the default judgment.
Ausborn also argued that Illinois Union also had an implied duty to defend if the judgment or expenses might exceed the SIR. The court also rejected this argument because the policy contained an “explicit disclaimer of any duty on the part of [Illinois Union] to defend against claims brought against the Insured.” Id. at *5.
On appeal, the Eleventh Circuit affirmed the district court’s dismissal. The court noted that Illinois Union’s policy “clearly expresses an intention that the insured’s failure to comply with the condition will result in forfeiture of the insured’s rights under the policy.” Ausborn, 2024 WL 4976324, at *3. Though the opinion is unpublished, Ausborn serves as a good example that clear policy language can save insurers from picking up the slack of insureds who fail to fulfill their contractual obligations.