Nargizyan v. State Farm: California’s Seepage Exclusion

State Farm asked the California Supreme Court to erase Nargizyan. The court refused.

If an insurer denied your water damage claim because the leak was “continuous or repeated,” the ground shifted this year. A published California decision now holds that the exclusion reaches only leaks that develop gradually, and that the insurer, not you, must prove how long the water ran. State Farm tried twice to keep that decision out of the law books and lost both times.

Levon Nargizyan felt warm tiles under his bare feet in his kitchen. He found hot water spraying from a pipe in the crawl space and had a plumber cut out the broken section that day. State Farm denied the claim as a slow leak. The Court of Appeal reversed summary judgment on every claim, including punitive damages, and on August 12, 2026, the California Supreme Court refused State Farm’s request to depublish the decision. Nargizyan v. State Farm Gen. Ins. Co., 120 Cal. App. 5th 581 (2026).

The exclusion reaches only leaks that develop gradually, and the insurer has to prove how long the water ran.

Nargizyan’s policy insured accidental direct physical loss and excluded loss caused by “continuous or repeated seepage or leakage of water or steam from a … plumbing system,” and it applied that exclusion “regardless of whether the event occurs suddenly or gradually.” Nearly every California homeowners policy carries a version of it, and so do most landlord, small business, and association property forms.

The court held that “even if the exclusion does not expressly require a specific passage of time for a leak to be continuous or repeated, the exclusion applies only to leaks that occur gradually over some period of time.” Coverage provisions are read broadly and exclusions narrowly. Mosley v. Pac. Specialty Ins. Co., 49 Cal. App. 5th 417, 423 (2020). State Farm argued for the first time on appeal that the exclusion carries no time element at all, and the court declined to reach an argument raised that late, so expect insurers to press it again.

The burden is the part that changes claims. An insurer invoking an exclusion must prove it applies, and proving this one means proving duration. State Farm proved none. Its engineer testified that he “did not know and could not estimate when the leak started, how long it existed, or at what rate (or rates) water had previously released from the pipe as the leak developed,” and that he “can’t even estimate” how long the pipe had been discharging water. The report had been written to find the cause of the failure, not its duration.

An insurer cannot manufacture a coverage dispute after its own adjuster has already found the loss covered.

State Farm’s own claim specialist inspected the house, reviewed a video of the leak, and wrote under a section titled “Determination of Coverage” that the loss “[d]oes not appear to be [continuous or repeated leakage or seepage]” and that “[t]he policy provides coverage for resulting damage.” Six days later another specialist emailed Nargizyan, “It looks like based on the inspection[, c]overage was extended for the repairs needed and the cleanup.” Only afterward did State Farm retain a forensic engineer, who concluded that a screw or nail had punctured the pipe and that leakage “over time would have increased as the screw or nail corroded.” State Farm then denied the claim.

Insurers answer a bad faith claim by calling the denial a genuine dispute over coverage. That defense has limits. It does not relieve an insurer of its obligation to thoroughly and fairly investigate, process, and evaluate the claim, Wilson v. 21st Century Ins. Co., 42 Cal. 4th 713, 723 (2007), and it does not apply where the insurer conducts a biased investigation, Chateau Chamberay Homeowners Ass’n v. Associated Int’l Ins. Co., 90 Cal. App. 4th 335, 348-49 (2001), disapproved on another ground by Wilson, 42 Cal. 4th at 724 n.7. State Farm denied under an exclusion that turns on duration without investigating duration, and it hired its causation expert only after its own adjuster had found coverage.

The punitive damages claim survived as well, and against the company rather than the adjuster. The claims team manager who supervised the file could grant or deny coverage and enforced State Farm’s claims processes across thousands of claims.

State Farm fought to keep the decision off the books so that no other policyholder could use it.

The court first issued the opinion unpublished, which would have barred anyone from citing it. Policyholder groups, consumer attorneys, and others asked the court to publish it. State Farm opposed and lost. It then asked the California Supreme Court to depublish the decision. Depublication does not ask the court to say the Court of Appeal was wrong. It asks that the decision stop existing as authority while the judgment between the parties stands. What State Farm wanted was that no one else could cite the case and use it to their advantage. The Supreme Court refused on August 12, 2026.

What Nargizyan lets you demand when an insurer denies your water damage claim.

Four things are worth insisting on. Make the insurer carry its own burden. It chose the exclusion, so it has to prove the leak was gradual, and you can ask in writing what evidence establishes how long water was escaping. An engineer’s opinion that a leak would have worsened “over time” describes a mechanism, not a duration, and that is exactly what Nargizyan holds is not enough.

Ask what the expert was hired to determine. A report written to identify the cause of a failure proves nothing about how long the failure leaked. The assignment matters as much as the conclusion.

Demand the complete claim file, including internal notes, the adjuster’s inspection notes, and every engineering report. The sequence in Nargizyan surfaced only because the file showed an early coverage determination the company later reversed. If your file contains one, it is powerful evidence.

Preserve your own proof now. Video and photographs of water actively escaping, the date and circumstances of discovery, the plumber’s invoice, the failed pipe or fitting, and the absence of mold or standing water all did work in this case.

A denial is a position, not a verdict. If State Farm or another carrier denied your water damage claim as continuous or repeated seepage, the question is not only whether your leak was sudden. It is whether your insurer ever did the work to find out. I read claim files for a living. Send me yours.

Contact me today if you’re dealing with a water damage claim with your insurer so I can help you navigate the claim and discuss your options.