While riding his bicycle in June 1989, Bernard Martin was struck by a truck owned by Larry Day, driven by David Delk, and insured by petitioner Georgia Farm Bureau Mutual Insurance Company ("GFB"). Martin's mother, acting individually and as her son's next friend, filed suit against Delk and Day. A default judgment was entered against Delk in December 1990, 1
and Day was voluntarily dismissed. Respondents filed the instant action against GFB in October 1992, alleging that it was legally obligated under its contract of insurance to pay to respondents the amount of the default judgment entered against Delk. The trial court denied GFB's motion for summary judgment in which the insurer asserted that its financial obligation was limited to the amount of statutory minimum coverage ($15,000) or to the policy limits ($25,000). The Court of Appeals granted GFB s application for interlocutory review and, relying on Leader Nat. Ins. Co. v. Kemp & Son, 259 Ga. 329 (380 SE2d 458) (1989)
, and Starnes v. Cotton States Mut. Ins. Co., 194 Ga. App. 320 (2) (390 SE2d 419) (1990)
, affirmed the trial court's decision, concluding that the extent of damages incurred by respondent and payable by GFB was for determination by a jury. Ga. Farm Bureau Mut. Ins. Co. v. Martin, 209 Ga. App. 237 (433 SE2d 315) (1993)
. We granted GFB's application for a writ of certiorari to determine whether the insurer's liability was statutorily or contractually limited.
1. While the Court of Appeals recognized that respondents were not automatically entitled to recover from GFB the full amount of the judgment entered against Delk (209 Ga. App. at 239), it also stated that the insurer was not insulated from liability to the respondents for payment of any judgment obtained by them based on Delk's operation of the insured vehicle. Id. See also 209 Ga. App. 237
, Div. 4. Relying on language from Mahone v. State Farm Mut. Auto. Ins. Co., 188 Ga. App. 664 (2) (373 SE2d 809) (1988)
, and Berryhill v. State Farm Fire &c. Co., 174 Ga. App. 97 (329 SE2d 189) (1985)
, respondents contend that GFB is liable for any judgment rendered against Delk once it is established that GFB had notice of the pending lawsuit. See also Starnes v. Cotton States Mut. Ins. Co., 194 Ga. App., supra, aff'd Cotton States Mut. Ins. Co. v. Starnes, 260 Ga. 235 (392 SE2d 3) (1990)
We do not agree with respondents that the cited cases are authority for the asserted rule of law. In each case, the language was dicta, for in none of the cases was the court faced, as we now are, with the task of defining the financial limitations of an insurer's liability to a third party for the insurer's failure to defend an insured in a tort action brought by the third party. In Berryhill, the issue was whether the tortfeasor's victim, who had obtained a default judgment against the tortfeasor, could recover from the tortfeasor's insurer, which had not been given the contractually-required notice of the litigation against the tortfeasor; in Mahone, the issues were whether the tortfeasor was covered by the insured's policy and whether the named insured, rather than the tortfeasor, could give the contractually-required notice of litigation to the insurer; and in Starnes, both appellate courts focused on whether an otherwise uninsured permissive driver could expressly decline the coverage provided by the vehicle's insurer. 2
In the absence of controlling authority, we conclude, for the reasons set out below, that the scope of the insurer's liability is not so broad as to encompass "any judgment."
The "rule of election" became a part of automobile insurance law in Ericson v. Hill, 109 Ga. App. 759 (137 SE2d 374) (1964)
, at a time when liability insurance was procured for the benefit and protection of the insured. Starnes, supra at 237. In Ericson, the Court of Appeals held that a person driving a car with the owner's permission (thereby qualifying as an "insured" under the owner's policy) was bound by the settlement entered into by the injured party and the vehicle owner's insurer since the permissive driver had "chosen to invoke the coverage" provided by the owner's insurer. Ericson v. Hill, supra at 761. The appellate court described the permissive driver as a third-party beneficiary to the insurance contract with "an independent power of election" by which she could seek or reject the coverage available to her under the policy issued to the vehicle owner. Id. The "rule of election" provided that one who met the policy's definition of "insured," but who was not the named insured of that policy, was covered by that policy only if he so elected to subject himself to the terms and conditions of the insurance contract to which he was not a party. Of paramount importance to the operation of the rule was its contractual footing: a non-party to a contract could not be subjected to the terms and conditions of the contract without his consent. The courts opined that if the insurer could not force a third party "to relinquish a right by treating it as an insured without its consent, such third party ha[d] a right of election." Leventhal v. American Bankers Ins. Co., 159 Ga. App. 104 (4) (283 SE2d 3) (1981)
at 237. By the act of driving another's insured vehicle with permission, the driver agreed to be an insured under the owner's policy on the vehicle. Thus, no longer was an explicit election of coverage required before the insurance covering a vehicle became involved because the insurance law mandated that parties in these situations were in a contractual relationship. Therefore, the "rule of election" was limited, in cases involving mandatory automobile insurance coverage, to those instances in which an insurer sought to rely on a non-owner driver's express declination of the insurance coverage provided by the owner's policy. See Starnes, supra at 260 Ga. 237.
Since, in the case at bar, the non-owner driver's failure to affirmatively seek coverage under the owner's policy does not bring the "rule of election" into play, GFB cannot assert a purported lack of compliance with the rule to avoid its contractual obligation. It follows that GFB's liability is not limited by public policy to the statutory minimum coverage of $15,000. Compare Cotton States Mut. Ins. Co. v. Neese, supra.
3. Alternatively, GFB contends the Court of Appeals erred when it concluded that GFB's financial liability to respondents is not restricted to the policy limits of $25,000. Relying on the decisions in Leader Nat. Ins. Co. v. Smith, 177 Ga. App. 267 (339 SE2d 321) (1985)
, and Leader Nat. Ins. Co. v. Kemp & Son, supra, the Court of Appeals concluded that the extent of the damages for which GFB was responsible was an issue for a jury. We agree with GFB's assertion that its financial liability with regard to the judgment entered against the non-owner driver is limited to the policy limits.
Co. v. Kemp, 259 Ga. at 330. However, when the injured victim sues the insurer for the insurer's failure to defend an insured tortfeasor, the plaintiff is hard-pressed to establish the harm the plaintiff has suffered as a result of the insurer's failure to defend the tortfeasor, since, even if the insurer had done its duty, its maximum liability to the injured victim would have been the limits of the insurance policy. Thus, the insurer's failure to defend the insured tortfeasor could not have damaged the injured victim to any extent greater than the policy limits. 6
Thus, GFB was correct in its assertion that its liability to respondents did not extend to cover "any judgment" entered against its insured, and that its liability to respondents based on the judgment against the non-owner driver cannot exceed the limits of the policy issued to the owner. Accordingly, the trial court should have granted summary judgment restricting the amount of respondents' recovery to the limits of the policy issued by GFB to the vehicle owner.
Helms & Helms, Catherine H. Helms, J. Jeffrey Helms, Jr., for appellees.