Like with the dragon, a cutscene plays where the dragon takes off and then incinerates your entire party - No combat starts, you just die. There is precedent for this with Planescape Torment, certain actions lead to no-combat instant death.
I cannot be the only one who instantly thought of the fire corpse-witch-thing on the north side of Cloisterwood (DoS2). I can't be the only one who accidentally stumbled upon her when I was exploring and just got wiped out... A lot. :<
EDIT: and that damned witch is one hella good argument/indication that Larian (just like Owlcats) do have a tendency to drop insta-death encounters in lower level places. ; _ ;
