The insurer’s motion for summary judgment seeking to eliminate the insured’s claims for damage from a water leak, bad faith and punitive damages failed. Nargizyan v, State Farm General Ins. Co., 2026 Cal App. LEXIS 302 (Cal. Ct. App. April 15, 2026).

The insured noticed tiles on his kitchen floor were warmer than usual. He found water dripping from the top of the crawl space under the house. He noticed water was “dripping in different places” but not pouring like a faucet. “There were too many places to count where water was dripping and there was water all over the place.”

The insured called a plumber, who discovered the water was coming from a hot water pipe in the crawl space. The water was spraying up out of the pipe, soaking both the insulation and the wood and tile flooring above the crawl space. The plumber removed the broken piece of pipe and replaced it, which stopped the leak.

The damage was reported to State Farm. The State Farm policy excluded from coverage any loss caused by “Water, meaning,” among other things, “continuous or repeated seepage or leakage of water or steam from a . . . plumbing fixture, including their walls, ceilings, or floors,” “regardless of whether the event occurs suddenly or gradually, involves isolated or widespread damage, [or] arises from natural or external forces.”

Servpro informed the State Farm adjuster that a hot water pipe had “burst” in the crawl space, About one and three-fourths inches of hot water in the crawl space was found. The tiles, subfloor, and cement in the kitchen, as well as the hardwood floor in the adjacent living room, would have to be removed and replaced.

A State Farm claim specialist inspected the house and reported there “does not appear to be [continuous or repeated leakage or seepage]. The video shows the water coming out a rapid rate. The policy provides coverage for resulting damage.”

State Farm then hired 4X Forensic to inspect the broken piece of pipe to determine the cause of loss. 4X Forensic issued a report concluding the pipe had been leaking through a pinhole perforation that was “most likely” cause by a screw or nail puncture. The report concluded, “[t]he most reasonable cause of failure based on physical evidence is someone ground down the surface to get good electrical contact,” and that “[a] sharp object, such as [a] screw, perforated the tube.”

State Farm denied the claim because it determined the damage was caused by faulty workmanship that resulted in continuous or repeated seepage or leakage and thus was excluded from coverage.

The insured filed suit against State Farm alleging causes of action for breach of contract and breach of the covenant of good faith and fair dealing. He also sought punitive damages. State Farm moved for summary judgment. The trial court granted State Farm’s motion. The insured appealed.

The insured first contended that there was a triable issue of material fact as to whether State Farm breached the policy in denying the water loss claim. Relying on the exclusion, State Farm had the burden to show the exclusion applied. State Farm argued that the water damage was caused over time due to a slowly developing leak. The insured pointed out that no evidence established water was leaking from the pipe “for a long time” such that the leak could be considered “continuous or repeated.”

The court determined there was a triable issue of material fact on the breach of contract claim. A reasonable jury could conclude that the leak from the hot water pipe constituted a sudden release of water such that the water loss was not subject to the continuous or repeated seepage or leakage exclusion. The trial court’s order granting State Farm’s motion for summary judgment on the breach of contract was reversed.

The insured further contended that there was a triable issue regarding whether State Farm’s conduct in denying the water loss claim was reasonable and not in bad faith. Unreasonableness could be shown when an insurer failed to fully investigate a claim or denied the claim relying on an unfounded factual basis or after ignoring available evidence that supports the claim.

State Farm presented evidence suggesting it inquired of and considered observations and evidence provided by every party – the insured, the plumber, ServePro and 4X Forensic. Therefore, State Farm argued it fairly investigated the water loss claim before denying coverage. This argument, however, neglected evidence suggesting State Farm failed to fully investigate the claim and ignored other available evidence in reaching its coverage conclusion. The insured argued State Farm denied coverage under the exclusion without investigating how long the water discharged from the pipe. The court agreed State Farm was not entitled to summary judgment on the bad faith issue.

The court also found there were triable issues remaining regarding the claim for punitive damages.