A California homeowner found a hot-water pipe leaking beneath his kitchen in 2020; six years later, an appeals court questions State Farm’s denial of his claim

A California homeowner whose kitchen floor tiles turned unusually warm in June 2020 discovered a leaking hot-water pipe beneath his house, triggering an insurance dispute that has now been before an appeals court. Levon Nargizyan's claim was rejected by State Farm General Insurance Company, which argued that the water damage resulted from continuous or repeated leakage excluded under his policy. However, California's Second Appellate District has reversed a lower court ruling in the insurer's favour, finding that unanswered questions about how long the pipe had leaked and whether the insurer properly investigated the claim must be examined further.How the 2020 kitchen floor leak became an insurance disputeAccording to the court's judgment, Nargizyan discovered the problem on June 6, 2020, when he noticed that the tiles on his kitchen floor felt warmer than usual. After investigating, he found water dripping from the ceiling of the crawl space beneath his house. He described seeing water dripping from numerous places, with some drops falling faster than others, although he said it was "not pouring like a faucet". He contacted a plumber, who identified a damaged hot-water pipe in the crawl space.The plumber explained that water was spraying upwards from the pipe, soaking the insulation, wooden structures and flooring above it. The damaged section was removed and replaced, stopping the leak. Nargizyan subsequently contacted ServPro, a restoration company, on June 8 to begin cleaning and assessing the damage. He reported the water loss to State Farm on June 9. According to information provided to the insurer during its investigation, the crawl space contained approximately one and three-fourths inches of hot water, while the insulation, wooden joists and plywood subfloor had become saturated. Marble kitchen tiles were also discoloured, and the damage assessment indicated that sections of the kitchen flooring and the hardwood floor in the adjoining living room would need to be removed and replaced.Why State Farm questioned the homeowner’s water damage insurance claimNargizyan's homeowners insurance policy covered accidental direct physical loss to the dwelling and personal property. However, it also contained an exclusion for certain types of water damage, including loss caused by "continuous or repeated seepage or leakage" from a plumbing system. The policy stated that the exclusion applied regardless of whether the event occurred suddenly or gradually and whether the damage was isolated or widespread. State Farm relied on this provision when assessing the homeowner's claim.During its initial investigation, State Farm received photographs and information from the restoration company and arranged an inspection of the property on June 24, 2020. Claim specialist John Foster observed that a pipe beneath the raised foundation had burst and sprayed water into the surrounding framework, where it was absorbed by the insulation. His inspection notes also referred to limescale buildup and black compression repair tape on the pipe. After reviewing a video supplied by Nargizyan, Foster described the water as spraying out at a rapid rate, estimating that it was releasing more than three cups per minute. Importantly, his notes stated that the incident did not appear to involve continuous or repeated leakage and that the policy provided coverage for the resulting damage. On June 30, another State Farm representative emailed Nargizyan stating that coverage appeared to have been extended for the necessary repairs and clean-up, although the investigation remained open and subject to a reservation of rights.Forensic engineering report identifies possible cause of the pipe leakState Farm subsequently commissioned an inspection of the damaged pipe by 4X Forensic Engineering Laboratories. The firm inspected the removed pipe on August 6, 2020, and issued its report on August 18. Engineer Bruce Agle concluded that the leak had originated from a pinhole perforation that was most likely caused by a screw or nail. The report suggested that the pipe initially experienced no leakage or only minor leakage, which increased as the screw or nail corroded. It also recorded that the pipe released water at a rate of 0.3 gallons per minute when tested at a water pressure of 65 pounds per square inch.On September 11, State Farm informed Nargizyan that it was rejecting his claim, attributing the damage to faulty workmanship and continuous or repeated leakage. The homeowner's public adjuster, William Musakhanyan, challenged the engineering findings, arguing that the inspection had not identified any screw, nail or other sharp object that could have punctured the pipe. He also questioned the report's stated water-release rate, pointing to a video of the inspection in which the engineer had reportedly referred to a rate of 2.3 gallons per minute. The adjuster further questioned the conclusion that the hole had been caused by a screw or nail, noting that the photographs did not show the expected signs of such a puncture. State Farm maintained its denial after reviewing the objections and sent a further denial letter on November 10, 2020.Homeowner disputes State Farm’s claim of long-term water leakageWhen Nargizyan challenged the insurance decision, one of the central issues became the duration of the leak. State Farm argued that the pinhole had developed gradually and that water had been escaping for a period before the homeowner noticed the warm kitchen tiles. The insurer relied on the engineering report and the extent of the damage to support its position that the incident fell within the policy exclusion.Nargizyan disputed that interpretation. He maintained that June 6 was the first time in the ten years since he had built the house that he had noticed a temperature change in the kitchen floor. He also argued that he had acted immediately after discovering the problem, contacting a plumber who repaired the pipe. His evidence included photographs and video showing water spraying from the damaged section, as well as the absence of pooled water, muddy soil and mould in the crawl space. His mechanical engineering expert, Richard Mumper, also questioned whether a screw or nail had caused the hole. Mumper identified a chemical reaction on the pipe's surface as another possible explanation, stating that the formation of a pinhole through chemical etching would not necessarily take a long time. He also criticised the forensic investigation for failing to establish how long the leak had existed.State Farm fails to establish how long the hot-water leak had existedThe Los Angeles County Superior Court had previously granted State Farm's motion for summary judgment, finding that the insurer had established that the water damage resulted from continuous or repeated leakage. Although the trial court acknowledged that Nargizyan had challenged the engineering report, it concluded that his evidence did not sufficiently establish that State Farm had acted unreasonably in denying the claim. Nargizyan appealed that decision.The Second Appellate District disagreed with the decision to grant summary judgment. It explained that the insurer had to establish that the policy exclusion applied and that the evidence presented by Nargizyan raised a genuine factual dispute about the duration and nature of the leak. The court noted that the engineer who examined the pipe could not identify when the leak began, how long it had existed or the rate at which water had previously escaped. The court also distinguished the case from earlier insurance disputes in which evidence of months-long leakage, extensive mould or other signs of prolonged water damage had supported the application of similar exclusions. In Nargizyan's case, there was no comparable evidence establishing an estimated duration for the leak.Why the appeals court overturned the ruling in State Farm’s favourThe judges concluded that a reasonable jury could find that the pipe had released water suddenly rather than leaking gradually over an extended period. The opinion stated that "a triable issue of material fact remains" regarding whether the leak lasted long enough to fall within the continuous or repeated leakage exclusion. Consequently, the court reversed the summary judgment ruling on the breach of contract claim.The appeals court also considered Nargizyan's claim that State Farm had breached the implied covenant of good faith and fair dealing by failing to investigate the water damage adequately. State Farm argued that it had conducted a full investigation, consulted the homeowner, plumber, restoration company and public adjuster, and relied on an independent engineering report before making its decision. It maintained that a genuine dispute over coverage existed and that its decision was therefore not unreasonable.Why State Farm’s claims investigation and denial faced further legal scrutinyHowever, the appellate judges found that questions remained about whether the investigation had been sufficiently thorough and fair. They noted that the engineering report did not estimate the likely duration of the leak, despite the insurer relying on the continuous leakage exclusion. The court also considered the objections raised by Nargizyan's public adjuster and mechanical engineering expert concerning the proposed cause of the pinhole. The judges concluded that a reasonable jury could find that State Farm had failed to investigate the likely duration of the leak adequately and had ignored available evidence and alternative explanations before denying the claim.The court further found that factual disputes remained concerning Nargizyan's request for punitive damages. He argued that Donna Blazewich, the claims team manager overseeing the claim, had directed claim specialist Jennifer Gilman to deny coverage. Evidence presented during the proceedings indicated that Blazewich had supervisory authority over claim specialists and could direct whether claims should be covered, denied or settled. She had also testified about overseeing thousands of claims during her time as a team manager. The appeals court found that the evidence raised a triable issue about whether Blazewich qualified as a managing agent and had ratified the conduct in question. It therefore declined to dismiss the punitive damages claim at this stage.California homeowner wins appeal, but State Farm is not yet required to payIn its final disposition, the California Court of Appeal reversed the judgment in State Farm's favour and directed the superior court to vacate its order granting summary judgment and enter a new order denying the insurer's motion for summary judgment and its alternative motion for summary adjudication. The court also ruled that Nargizyan was entitled to recover his costs on appeal.The opinion was filed on April 15, 2026, and subsequently modified and certified for publication on May 14, 2026, without changing the appellate judgment. The ruling leaves the underlying insurance dispute open for further proceedings. It does not determine whether the leak was ultimately sudden or gradual, nor does it establish that State Farm must pay the claim. Instead, it establishes that the conflicting evidence and unresolved questions surrounding the investigation must be dismissed through summary judgment.You use AI every day. Now get your AI Quotient. Take the AIQ test.