## Facts

- Enrique Silberg held a hospital and surgical expense policy obligating California Life Insurance Company to pay hospital and surgeon’s fees up to $5,000, less a $100 deductible.
- The policy excluded losses caused by injuries “for which compensation was payable under any workmen’s compensation law.”
- Silberg was seriously injured in an accident at a laundromat and incurred about $6,900 in hospital and medical charges.
- Silberg submitted claims to California Life and also pursued workers’ compensation; the compensation carrier denied liability based on uncertainty about Silberg’s employment status.
- California Life made no payments while the workers’ compensation matter was pending, stating its policy liability could not be determined until that proceeding ended.
- The workers’ compensation case ended by compromise and release for $3,700, including $1,100 paid toward hospital bills, leaving approximately $5,800 in hospital bills unpaid.
- After the compromise, California Life denied all policy liability, asserting the workers’ compensation exclusion applied.
- Silberg sued for (1) declaratory relief establishing coverage and (2) tort damages for distress and punitive damages based on alleged fraud and bad faith.
- The trial court declared coverage and ordered payment of $4,900 (policy limit minus deductible); a jury awarded Silberg $75,000 compensatory and $500,000 punitive damages on the tort claim.
- The trial judge granted the insurer a new trial on the tort damages due to insufficient evidence and excessive damages; Silberg appealed that order, and the insurer cross-appealed the coverage ruling.

## Issues

1. Whether the workers’ compensation exclusion barred coverage where workers’ compensation applicability was contested and the compromise settlement did not fully cover the medical bills.
2. Whether the insurer breached the implied covenant of good faith and fair dealing by refusing to pay any benefits while awaiting the outcome of the workers’ compensation proceeding.
3. Whether the trial court abused its discretion in granting a new trial on compensatory and punitive damages as unsupported by the evidence and excessive.

## Decision

- The court affirmed the declaratory judgment for Silberg, holding the policy was ambiguous as applied and required payment of $4,900 in benefits.
- The court held the insurer breached the implied covenant of good faith and fair dealing by withholding benefits despite substantial uncertainty whether workers’ compensation would apply.
- The court affirmed the order granting a new trial on tort damages, concluding the trial judge did not abuse discretion in finding the verdict unsupported and excessive, particularly as to punitive damages.

## Legal Principles

- Ambiguous insurance policy provisions, including exclusions, are construed against the insurer and in favor of coverage consistent with the insured’s reasonable expectations.
- An insurer may not withhold or indefinitely delay benefits solely because the insured is pursuing a potentially overlapping remedy (such as workers’ compensation) when applicability of that remedy is genuinely disputed; the insurer must give at least equal consideration to the insured’s interests.
- Bad faith does not automatically justify punitive damages; punitive damages require proof of oppression, fraud, or malice and are subject to close trial-court supervision.
- An order granting a new trial based on insufficiency of the evidence or excessive damages is reviewed deferentially and will be upheld absent an abuse of discretion.

## Conclusion

The court enforced health-policy coverage notwithstanding a workers’ compensation exclusion where the exclusion’s application was uncertain and did not fully satisfy the loss, recognized bad faith in the insurer’s refusal to pay while awaiting the compensation proceeding, and upheld a new trial on tort damages due to insufficient evidence and excessiveness, leaving damages to be determined on retrial.


Silberg v. Cal. Life Ins. Co., 11 Cal. 3d 452 (Cal. 1974)