1) The insurance company will more often than not sue the party responsible for the faulty workmanship that triggered the incident to recover the money (I've seen this happen). In this case the owner is that party.
2) One real example is enough to show it's not a legend and you provided it yourself:
> Some courts have upheld this rather cramped reading of the exclusion, while others construe it properly and require insurers to pay for the water damage
Since it's upheld in court I find your statement that it's an urban legend pretty confusing. It's like showing a picture of the night sky to prove the Sun is a myth.
YMMV of course, you should read your own contract to see what's stipulated and how comprehensive it is, and case law in your jurisdiction to see if courts would rule in your favor. But better be safe and start from the assumption that the "urban legend" is real since courts support it. It's the kind of legend that might cost you money.