Nargizyan v. State Farm General Insurance Company

[Triable Issues of Fact Existed Regarding the Duration of the Subject Water Leak and the Insurers’ Investigation, Precluding Summary Judgment in Favor of the Insurer on Homeowners’ Breach of Contract, Bad Faith, and Punitive Damages Claims]

In Nargizyan v. State Farm General Insurance Co., 120 Cal. App. 5th 581 (May 14, 2026), the Second District of the California Court of Appeal reversed summary judgment for State Farm General Insurance Company (“State Farm”) in a homeowner’s coverage dispute arising from a hot water pipe leak under Levon Nargizyan’s kitchen. The loss occurred on June 6, 2020, when Nargizyan noticed unusually warm kitchen tiles, inspected the crawl space, and observed water dripping in multiple places. A plumber located a hot water pipe spraying upward, removed and replaced the broken piece, and stopped the leak. ServPro began mitigation on June 8, and Nargizyan reported the claim to State Farm on June 9. 

The State Farm policy covered “accidental direct physical loss,” but excluded losses caused by “[w]ater, meaning,” among other things, “continuous or repeated seepage or leakage 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.” 

On June 24, 2020, State Farm’s claim specialist inspected the house and observed a burst pipe that was spraying upward into the framing, noted a “buildup of limescale” and failed repair tape, and estimated a rapid spray rate exceeding three cups per minute based on a video. Additionally, the claim specialist’s notes stated it did not appear to be continuous or repeated leakage and indicated resulting damage coverage. On June 30, State Farm emailed Nargizyan, stating that coverage was extended for repairs and cleanup, while reserving rights.

State Farm later retained 4X Forensic Engineering Laboratories (“4X Forensic”) to inspect the broken pipe. On August 18, 2020, 4X Forensic reported a pinhole leak that was “most likely” caused by a screw or nail puncture that corroded over time, opining a spray leak at 0.3 gallons per minute. On September 11, State Farm denied coverage on the basis that the damage was caused by faulty workmanship that resulted in continuous or repeated seepage or leakage and was therefore excluded from coverage.

Nargizyan’s public adjuster challenged 4X Forensic’s findings, noting that an inspection of the crawl space revealed no screw, nail, or other sharp object that could have perforated the pipe. The public adjuster also questioned why the report described a 0.3 gallon per minute release when 4X Forensic’s engineer had stated the rate was 2.3 gallons per minute during the inspection, as confirmed by the video the public adjuster recorded. Nevertheless, State Farm stood by its denial and issued a further denial on November 10, 2020.

Nargizyan subsequently sued State Farm for breach of contract, breach of the implied covenant of good faith and fair dealing, and violations of the Unfair Competition Law, and sought punitive damages. State Farm moved for summary judgment, arguing the exclusion applied and that there was a genuine dispute defeating bad faith and punitive damages. The trial court granted summary judgment, finding State Farm met its burden on the exclusion and that Nargizyan’s evidence, while disputing 4X Forensic’s findings, did not show that State Farm was unreasonable. Nargizyan timely appealed from the judgment.

The Court of Appeal found a triable issue of material fact as to whether State Farm breached the policy by denying coverage for the water loss claim, specifically whether Nargizyan’s loss fell within the exclusion for continuous or repeated leakage. In support of its position, State Farm relied on the pinhole, spray evidence, and saturated materials to infer a gradual leak. The Court of Appeal noted, however, that even assuming State Farm met its initial burden, Nargizyan produced evidence supporting a sudden event, including first-time tile warmth on June 6 after ten years, immediate discovery of a rapid spray without pooling or muddy soil, videos showing steam and hissing, no mold, the claim specialist’s contemporaneous assessment that it was not continuous or repeated leakage, and 4X Forensic’s inability to estimate start time, duration, or historical leak rate. As a result, the Court of Appeal concluded that a reasonable jury could find that the leak from the hot water pipe constituted a sudden release of water such that the water loss was not subject to the continuous or repeated seepage or leakage exclusion.

The Court of Appeal distinguished the case law relied on by State Farm because both Freedman v. State Farm Insurance Co., 173 Cal. App. 4th 957 (2009) and Brown v. Mid-Century Insurance Co., 215 Cal. App. 4th 841 (2013) involved undisputed long-term conditions, such as extensive mold or months-long duration. Additionally, Mojica v. State Farm General Insurance Co., 735 F. Supp. 3d 1247 (S.D. Cal. 2024) included expert duration estimates of multiple days. In contrast, State Farm offered no duration estimate and the engineer from 4X Forensic admitted in his deposition that he could not estimate when the leak began or how long it lasted. As a result, the Court of Appeal reversed the trial court’s order granting State Farm’s motion for summary judgment because there were triable issues of material fact on the breach of contract claim.

In its analysis of the bad faith claim, the Court of Appeal noted that a finding of bad faith requires an unreasonable withholding of benefits, and that the genuine dispute doctrine excuses neither an insurer’s failure to thoroughly and fairly investigate a claim nor the reliance on a biased investigation. The Court of Appeal concluded that the record contained evidence from which “[a] reasonable jury could conclude State Farm failed to conduct a sufficient investigation into the likely duration of the leak and ignored available evidence and alternative theories of the pinhole’s creation before denying the claim.” As a result, the Court of Appeal found that these disputes precluded summary adjudication under the genuine dispute doctrine.

With respect to the punitive damages claim, the Court of Appeal held that triable issues of material fact existed both on despicable conduct and on corporate ratification by a managing agent. Specifically, the Court of Appeal concluded that a jury could find “State Farm acted in a willful and conscious disregard of Nargizyan’s rights by failing to conduct a thorough investigation, ignoring available evidence, and changing its coverage decision without a reasonable justification.” Additionally, the Court of Appeal found that a triable issue existed regarding whether the claims team manager, who directed denial decisions and exercised broad discretion over thousands of claims, was a managing agent whose ratification could support corporate punitive liability. The Court of Appeal rejected State Farm’s argument that Nargizyan was bound by earlier interrogatory responses identifying only the conduct of the claim specialist (and not the claims manager). The Court of Appeal reasoned that State Farm did not suggest Nargizyan had a duty to supplement or amend his discovery responses after he learned of new information through discovery suggesting that Blazewich was a managing agent who ratified the claims specialist’s conduct.

In light of the above, the Court of Appeal reversed the trial court’s judgment in favor of State Farm and directed the trial court to vacate its order and enter a new order denying summary judgment and summary adjudication.

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