A California Court of Appeal reversed a lower court's grant of summary judgment in favor of State Farm, finding that there are triable issues of material fact regarding a claim denial due to continuous or repeated seepage. The case is Nargizyan v. State Farm Gen. Ins. Co., 2026 Cal. App. Unpub. LEXIS 2585 (2026). Note that this opinion is unpublished and therefore has limited precedential value.
Background
On June 6, 2020, Levon Nargizyan discovered that tiles on his kitchen floor were unusually warm. He inspected the crawl space under his house and found that water was spraying from a hot water pipe in the crawl space and onto the bottom of the kitchen tiles.
He stated that water was dripping rapidly in many different places, but it was not pouring like a faucet. The water was spraying up into the insulation and the wood and tile flooring above, causing damage.
Nargizyan hired a plumber, who identified the source of the leak, and removed and replaced the broken section of the pipe, stopping the leak. Shortly after, Nargizyan hired ServPro to initiate the cleanup process and assess the damage, and filed a water loss claim with his homeowners insurance provider, State Farm.
Continuous or Repeated Seepage or Leakage
State Farm denied the claim, citing the policy's exclusion for continuous or repeated seepage or leakage of water. The policy states, in part, that coverage is excluded for any loss caused by:
"Water, meaning, among other things, "continuous or repeated seepage or leakage of water or steam from a . . . plumbing system, including from, within or around any . . . plumbing fixture, including their walls, ceilings or floors," "regardless of whether the event occurs suddenly or gradually, involves isolated or widespread damage, [or] arises from natural or external forces."
A State Farm claim specialist initially inspected the damage and believed the damage was not the result of a continuous or repeated leakage and that coverage should be extended for the damage.
State Farm later had an engineering firm, 4X Forensic Engineering Laboratories, inspect the damage. They concluded that the leak originated from a pinhole perforation, most likely caused by a screw or nail, that would have begun with little or no leakage and worsened over time.
Relying on the 4X Forensic report, State Farm denied Nargizyan's claim, arguing that the loss was caused by faulty workmanship that resulted in continuous or repeated seepage.
Trial Court
Nargizyan filed a lawsuit against State Farm alleging breach of contract, breach of the implied covenant of good faith and fair dealing, and unfair business practices.
State Farm moved for summary judgment, arguing they did not breach the policy and properly denied the claim based on the policy's exclusion. The trial court granted State Farm's motion for summary judgment, finding that State Farm had met its burden of showing the damage was caused by a continuous leak and had reasonably relied on third-party experts to make its coverage decision.
Appellate Court
Nargizyan appealed the judgment to a California Court of Appeals. State Farm claimed that it properly denied the claim because the water damage was caused over time due to a slowly developing leak, and that Nargizyan did not present evidence to cast doubt on that conclusion. Nargizyan asserted that the evidence suggests that the damage was more likely caused by a sudden release of water as opposed to a gradual release.
State Farm presented the argument that because the water sprayed from the pinhole perforation and damaged the insulation, wooden joists, plywood subflooring, and hardwood and marble tile flooring, the obvious conclusion was that the water was gradually released from the pipe for a period of time before it was discovered. They cited 4X Forensic's report which supported this claim.
Nargizyan countered that the evidence did not show how long the water had been leaking before its discovery, arguing that it was potentially from a sudden release of water. In support of his argument, he claimed the day of the discovery of the leak was the first day in ten years of living in the house that he felt the warmth of the tiles and immediately called a plumber, who saw rapidly running water but no pooling in the soil.
Additionally, there was no mold. The State Farm claim specialist also estimated the water was leaking at a rate of three cups per minute and stated the leak did not appear to be a continuous or repeated leakage. Expert testimony also suggested that the pinhole could have been caused by a chemical reaction that could have happened suddenly, and that the nail puncture theory was unsupported.
The court found that triable issues of material fact still existed. By granting summary judgment, the lower court had prematurely decided a dispute that should be evaluated by a jury. The court found that a reasonable jury could conclude the leak was a sudden release of water rather than a continuous, gradual seepage.
Editor's Note
The court determined that the trial court erred in its ruling in favor of State Farm. The appellate court did not necessarily rule in favor of Nargizyan, but rather stated that the cause of loss is disputed and that a reasonable jury could conclude that the leak was a sudden release of water and not a gradual seepage.
Since the cause of the loss was not supported by available evidence, the trial court erred in ruling in favor of State Farm. Insurers cannot deny a water loss claim based on the continuous or repeated seepage exclusion without supporting the denial with evidence. The court also ruled that a reasonable jury could find that State Farm failed to conduct a sufficient investigation into the length of the leak and ignored evidence contrary to their claim.
(Photo credit: Andrey Popov/Adobe Stock)
This article originally appeared on FC&S Expert Coverage Interpretation and may not be reprinted.
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