Background
Hrant Nargizyan discovered a pinhole leak in a hot-water pipe inside a wall of his home. The leak caused water damage, and he filed a claim under his State Farm homeowner’s policy. State Farm denied the claim, invoking the policy’s exclusion for loss caused by “continuous or repeated seepage or leakage” of water over 14 or more days.
Nargizyan sued for breach of contract and insurance bad faith, alleging the leak was sudden, not the product of long-term seepage. State Farm moved for summary judgment, relying on its forensic expert’s conclusion that the damage was consistent with a prolonged leak. But during deposition, that same expert admitted he could not estimate how long the leak had lasted — and State Farm’s own claims specialist had initially determined the loss was covered before the company reversed course.
The Court’s Holding
The Second District Court of Appeal reversed summary judgment in favor of State Farm. The court found triable issues of material fact on both the breach of contract and bad faith claims.
On coverage, the court held that the “continuous or repeated seepage or leakage” exclusion required State Farm to prove the leak lasted at least 14 days. Because State Farm’s own forensic expert could not estimate the leak’s duration, the insurer failed to carry its burden as the moving party. The court distinguished prior cases — including Freedman, Brown, and Mojica — on their facts, noting that those cases involved undisputed evidence of prolonged leaks.
On bad faith, the court held a jury could find State Farm acted unreasonably by reversing its own specialist’s initial coverage determination without adequate justification, supporting both the tort claim and a potential punitive damages award.
Key Takeaways
- An insurer invoking a seepage exclusion bears the burden of proving the leak meets the policy’s durational threshold — here, 14 days of continuous or repeated leakage.
- When the insurer’s own expert cannot estimate leak duration, summary judgment for the insurer is inappropriate.
- An insurer’s internal reversal of an initial coverage determination — without clear justification — can support a bad faith and punitive damages claim.
- The court distinguished prior seepage-exclusion cases (Freedman, Brown, Mojica) rather than overruling them, leaving the exclusion intact for cases with clear long-term leaks.
Why It Matters
Pipe leaks inside walls are among the most common homeowner’s insurance disputes in California. This opinion clarifies that insurers cannot hide behind seepage exclusions when their own evidence fails to establish the leak’s duration. For policyholders, the case is a roadmap for defeating summary judgment: challenge the insurer’s forensic evidence and highlight internal inconsistencies in the claims file.
For insurers and coverage counsel, the decision is a reminder that summary judgment on exclusion defenses requires affirmative proof of the exclusion’s elements — not just a plausible theory. The bad faith reversal adds teeth: when a company overrides its own specialist’s initial coverage recommendation, that reversal itself becomes evidence of unreasonable conduct.