Water harm claims are among the many most steadily denied insurance coverage claims in California and all through the nation. Insurers typically depend on “steady or repeated seepage or leakage” (“CRSL”) exclusions to disclaim protection, even the place there may be little proof that the harm attributable to a burst or leaking pipe was really occurring constantly or repeatedly.
Policyholders have skilled State Farm’s aggressive use of this exclusion for years, regardless of California legislation requiring that protection grants be learn broadly, exclusions narrowly, and ambiguous coverage language resolved in favor of the insured’s cheap expectations.
A lately revealed California appellate resolution delivered an vital victory for policyholders going through these denials. In Nargizyan v. State Farm Gen. Ins. Co. (Might 14, 2026, B342340) ___ Cal.App.fifth ___, California’s Second District Court docket of Enchantment reversed abstract judgment in favor of State Farm, discovering that the trial court docket failed to acknowledge triable points of fabric truth on Nargizyan’s claims for breach of contract, unhealthy religion, and unfair enterprise practices. The appellate court docket acknowledged points with State Farm’s investigation and denial of the declare and pierced holes in California’s “real dispute doctrine,” a doctrine carriers have been utilizing for years to guard themselves from unhealthy religion legal responsibility.
The Details of the Loss
On June 6, 2020, home-owner Levon Nargizyan seen unusually heat kitchen tiles and located water dripping from the highest of the crawl house beneath his home. He referred to as a plumber, who found water spraying from a sizzling water pipe beneath the house, soaking insulation, wooden, and flooring supplies.
State Farm’s adjuster, or what State Farm calls a “Declare Specialist,” interviewed the plumber and reviewed pictures from below the home. Based mostly on her opinion, the failed pipe confirmed “proof of attainable steady or repeated seepage or leakage of water.” Nargizyan challenged her opinion and requested a web site go to by State Farm. State Farm ultimately despatched out one other declare specialist, who opined that the loss didn’t look like barred by the CRSL exclusion.
At that time, State Farm really afforded protection, however below a reservation of rights whereas it gathered data concerning the prices of cleanup and repairs. Nargizyan then employed a public adjuster to help him with the declare. In response, State Farm employed an engineer, Bruce Agle of 4x Forensic Engineering Laboratories, to find out the reason for the leak. Agle concluded that the pipe suffered a pinhole perforation almost definitely attributable to a nail or screw. He additionally opined that the punctured pipe wouldn’t have leaked, or would have leaked solely minimally, whereas the screw or nail remained inside it, however that the leakage would have elevated over time because the screw or nail corroded. On this foundation, State Farm denied the declare, contending that the harm was attributable to defective workmanship that resulted in steady or repeated seepage or leakage and thus was excluded below the coverage.
Nargizyan’s public adjuster challenged that conclusion, declaring a number of main issues with State Farm’s investigation:
- No proof established how lengthy the leak existed;
- There was no mildew, standing water, or long-term deterioration;
- State Farm’s personal engineer gave conflicting opinions concerning the water launch price; and
- The proof supported a sudden water launch, not gradual seepage.
Regardless of this, State Farm maintained its denial.
State Farm’s Movement for Abstract Judgment
Nargizyan filed swimsuit in September 2021. In December 2023, State Farm moved for abstract judgment. State Farm argued it didn’t breach the coverage as a result of the declare was excluded. Furthermore, it argued it didn’t act in unhealthy religion as a result of it performed a full and truthful investigation of the declare. State Farm additional maintained that the real dispute doctrine utilized to protection, such that its denial of the declare was not unreasonable.
The trial court docket agreed with State Farm, discovering that though 4x’s proof and precise findings had been disputed, State Farm met its preliminary burden to indicate the water loss was the results of CRSL and that Nargizyan didn’t meet his burden of exhibiting that State Farm was unreasonable.
The Appellate Court docket Discovered Many Triable Problems with Truth as to Whether or not the CRSL Exclusion Ought to Apply
On attraction, Nargizyan pointed to proof within the report demonstrating triable problems with truth on whether or not the CRSL exclusion ought to apply. Nargizyan identified that:
- Regardless of strolling barefoot in his dwelling day by day for 10 years, this was the primary time he felt a temperature change within the kitchen tiles;
- He instantly inspected the crawl house and found water spraying from the pipe, however didn’t observe pooled water within the soil;
- His observations had been confirmed and documented by a plumber;
- There was no mildew; and
- State Farm’s preliminary adjuster opined that the loss didn’t look like CRSL.
He additionally introduced proof from his personal retained engineer that the pipe harm might have occurred attributable to different components and that 4x’s nail-and-screw concept was unsupported by the proof. The appellate court docket agreed that triable points of fabric truth existed on the breach of contract declare.
The Court docket of Enchantment agreed that there have been important factual disputes {that a} jury ought to resolve and reversed the trial court docket’s abstract judgment in favor of State Farm. This was an vital victory for policyholders going through denied water harm claims and sends a robust message to State Farm and different insurers making an attempt to stretch “steady or repeated seepage or leakage” exclusions past their meant scope.
Necessary Dangerous Religion Ruling
The choice can also be important for unhealthy religion claims.
State Farm argued its denial was cheap as a result of there was a “real dispute” concerning protection. However the appellate court docket held {that a} jury might conclude State Farm didn’t conduct a good and thorough investigation earlier than denying the declare. The court docket discovered {that a} cheap jury might conclude that State Farm didn’t conduct a adequate investigation into the length of the leak and ignored accessible proof and different theories of the pinhole’s creation earlier than denying the declare. The court docket additionally talked about State Farm’s hiring of an knowledgeable to negate protection after its personal declare specialist indicated that the CRSL exclusion shouldn’t apply.
The court docket identified that State Farm’s investigation failed to find out how lengthy water was discharging from the pipe. That is vital as a result of that’s the primary issue State Farm would wish to know in an effort to deny a declare below the CRSL exclusion. The appellate court docket famous that 4x didn’t try to determine or estimate when the leak might have first sprung. The court docket additionally famous that State Farm failed to reply to the general public adjuster’s criticisms of its report and refused to offer a substantive response when these points had been raised throughout the declare.
Lastly, the court docket centered on points with State Farm’s knowledgeable choice, noting that 4x had been retained greater than 3,000 instances by State Farm, suggesting some type of bias.
The court docket discovered there was proof State Farm:
- Didn’t adequately examine the length of the leak;
- Ignored proof supporting protection; and
- Relied on probably biased engineering opinions.
The court docket additionally revived the home-owner’s punitive damages declare, discovering triable points concerning whether or not State Farm administration ratified the alleged misconduct.
Merlin Regulation Group and United Policyholders Helped Form the Enchantment
This resolution was not solely a serious victory for the person policyholder, it was additionally an vital appellate advocacy effort on behalf of insurance coverage shoppers statewide.
Merlin Regulation Group attorneys Daniel Veroff and Victor Jacobellis authored an amicus curiae temporary on behalf of United Policyholders, the nation’s main nonprofit policyholder advocacy group. By submitting briefs in these actions, United Policyholders performs an vital position in serving as a voice for insurance coverage shoppers in all 50 states and offering important data to policyholders.
Nargizyan Clarifies Carriers’ Obligations When Denying Claims Below CRSL Exclusions
State Farm and different attorneys who find yourself defending these circumstances in litigation will argue that Nargizyan is a fact-intensive case and doesn’t set up a brand new rule of legislation. What these attorneys ignore is that Nargizyan clarifies how insurance coverage corporations ought to seek for data on pipe burst claims and what data needs to be thought of earlier than denying a declare below the CRSL exclusion. In doing so, the court docket established precedent that the real dispute rule is not going to mechanically defend these circumstances from going to juries.