Well, my blood pressure is coming back down to normal levels... My agent got it straightened out, and I got an apology from the claims office. The repair is covered. They said that in the future, flaking paint due to poor workmanship is not covered. It didn't start flaking until we got that rock chip...
I asked them if they are now requiring that I only buy a brand new car???? How would you know if a car had bad paint??? There was no obvious repair work on the car, it drives fine, doesn't wear tires funny or anything...
I think I was the victim of an over-zealous claims rep trying to earn brownie points for saving the company money.