You should be able to shower with the pan liner in, cement board up(actual cement board), and shower curtain. Build curb, floor mud preslope, install liner(no fasteners), and another 1“ minimum floor mud on top, float curb. Cement board walls, silicon the edges, tape the seams, thinset level, and red guard the curb and walls. There won’t be any leaks at this stage. The tile provides merely aesthetics in the grand scheme of it all. They help shed water but offer very little to the game of waterproofing. It’s an illusion! Red guard is completely unnecessary and I don’t recommend it on every surface. Don’t use it on the bottom 6” or liner height of wall, or the top 3ft of wall, or on the pan floor, and never on drywall. The cement board will be submerged in the pan tile deep so it needs some breathing room. You’re just asking for moisture to accumulate in the wall but wait there’s a moisture barrier behind the cement board. That barrier got screwed up from the durarock install but you siliconed each stud, right? That’s called a hole in the plan. Welcome to the shower install conflict. For the love of grout don’t seal it! A 1/16th square. That’s impressive. The line of a dull carpenters pencil. You’d be lucky to buy board that’s within a 1/16”. I’ve worked with all kinds of framing types and they’d throw you off the deck if you were fussing over a 1/16”. Finish guys now that’s a different story. A 1/2“ square per 12ft, 1/4“ plumb average per 8ft, and a 1/16” level per 4ft in all reality is the best workmanship you‘re going to find in any home. Any thing else is an empty promise or a rubber square.

The rust is on the outer jacket of the hot water heater. Treating the rust spots is not going to affect the life of the inner tank in my opinion. You could open up the flush valve every few months to remove any sediment. Run the water until it is clear. Set to water temperature to 120 degrees. Running it hotter reduces the life, but running it colder increase the risk of legionnaire's disease. My previous hot water heat I bought in Sears lasted 19 years. I rarely ever flushed it. From my experience a hot water heater life is reduced by heavy usage of hot water. Reduce the amount of hot water you use and it should last a long time.

Thanks cat_ky! BT: For clarification, the main line came totally disconnected from the meter. Water was absolutely gushing out and would have flooded our lawn if we hadn't caught it immediately. Basically, it was a monstrous leak. Well, not even sure "leak" is the right word. Also I have no plans to take a $150 claim to court. I was looking for info about whether this is considered to be more than $150 worth of damage/negligence. Sounds like the answer is no. Thanks for the help everyone.

Next time give us a perspective view, not a head-on shot that hides things, please. So the red valve is the main water shutoff to the house. The lower faucet is to drain the house system when doing repairs, or needing water in the utility room.