California Legal Brief

The Rule of Nargizyan is that an insurer cannot establish application of a "continuous or repeated seepage or leakage" policy exclusion based solely on the size of a pinhole leak and resulting water damage, without evidence of the actual duration of the leak, under circumstances where the insured discovered and immediately repaired the leak with no evidence of mold or long-term water accumulation.

Appeal from judgment after granting summary judgment motion in Superior Court, Los Angeles County.

Defendant Appellant was State Farm General Insurance Company — the homeowner's insurer who denied coverage claiming the water loss fell within a policy exclusion.

Plaintiff Respondent was Levon Nargizyan — the homeowner who filed a water damage claim after discovering a leaking hot water pipe under his kitchen floor.

The suit sounded in breach of contract, breach of the covenant of good faith and fair dealing, and unfair business practices under the UCL. Nargizyan also sought punitive damages on his good faith and fair dealing claim.

The key substantive facts leading to the suit were: On June 6, 2020, Nargizyan noticed warm kitchen tiles, discovered water spraying from a pinhole in a hot water pipe in his crawl space, immediately called a plumber who repaired the leak, and submitted a claim to State Farm. State Farm initially indicated coverage after inspection but later retained 4X Forensic Engineering, which concluded the pinhole was caused by a screw or nail puncture that developed "over time." State Farm then denied the claim under a policy exclusion for "continuous or repeated seepage or leakage" from plumbing systems.

The procedural result leading to the Appeal: The trial court granted State Farm's motion for summary judgment, ruling that State Farm properly established the exclusion applied and Nargizyan's evidence challenging the 4X Forensic report was insufficient to show State Farm was unreasonable in denying coverage.

The key question(s) on Appeal: 1. Whether triable issues of material fact remained regarding application of the "continuous or repeated seepage or leakage" policy exclusion; 2. Whether triable issues remained on the breach of covenant of good faith and fair dealing claim; 3. Whether triable issues remained regarding punitive damages.

The Appellate Court held that triable issues of material fact precluded summary judgment where the insurer's expert could not determine when the leak started, how long it existed, or previous leak rates, and the insured presented evidence of immediate discovery and repair with no signs of long-term leakage such as mold or water pooling.

The case is inapplicable when there is undisputed evidence of the leak's extended duration (such as months of leakage), clear evidence of long-term water damage (such as mold, disintegrating materials, or extensive multi-room damage), or when water consumption records or other objective evidence establishes a specific timeframe for the leak.

The case leaves open the precise temporal threshold required for a leak to qualify as "continuous or repeated" under similar policy exclusions, and whether policy exclusions without defined temporal elements or thresholds are per se ambiguous.