Full coverage on Diesel vehicles has coverage for bad fuel. I believe it is covered under comprehensive side of the policy.

 

If it's bad fuel, that's ultimately damage resulting from fault of a 3rd party, not a lot different than someone rear ending you. It's part of comprehensive coverage, or maybe a rider like uninsured driver.

The insurance company will sue the gas station's insurance company who will sue the fuel distributors insurance company who will sue the refining company, those suits will probably getted lumped together with 37 more in arbitration. The law firm partners will rake in a few $10,000 chargeable hours to cover their $500 an hour in costs so they're happy, the insured get a new engine so they're happy, the shop puts in a new engine so they're happy with the negotiated 50% shop hour rate that covers their costs, and 14 million State Farm customers never notice the 3 cent increase in their policy premium. Insurance is a complicated game, so use whatever your policy offers to the fullest extent. You've paid for a hundred other people in a similar situation, might as well benefit from carrying the better policy when your time comes due.

 

Ok.
1. The water in fuel light.
Its all about surface tension. A water separator will not seperate emulsified water.
Emulsified water is no of a better a lubricant then normal water, it still burns off and produces steam pockets.
2) how old are the filters.
This is a scape goat question. It does not matter if the fuel in the tank (before any filtering) has more then 50ppm of h20 in it.
50ppm was the warranty cut off number when ford was sampling tanks. Notice I did not say sampling filter housing
3) full coverage insurance
Water in fuel is comprehensive damage, just like being hit by a deer.