I’m not sure what model you have, but there are magnets located in the display panel that interact with sensors located under the top case. If there was water damage, it’s possible that it shorted out the sensor and it’s not reacting to the magnet.
If you run a paper clip along the side of the screen, you’ll find the magnet. Then closing the lid will show you where the sensor is. If it’s near where the water damage occurred, then the sensor probably needs replaced.