My two cents.....
Tractors have a thousand nooks and crannies for stuff like dirt, water, seed, fertilizer, leaves, small twigs, oil, grease, etc, etc to get trapped and settle into. IF that tractor had been submerged to the point that it filled the bell housing with water, there would/should be evidence of rust/small sediment/mud/ in other places where you probably wouldn't normally find such things. For instance, if you unbolted a bracket loose or a body/fender piece and found such evidence underneath it (in places that pressure washing wouldn't normally reach) that would help support the theory it had been submerged (imho).
If no evidence, then all the rust might have been caused as suggested by poorman (post #25). Everyday use (as stated by the customer) can cause a lot of condensation inside it from the constant heating and cooling in a humid environment, especially if a gasket or seal had failed for whatever reason.
I commend jlsmith for giving his customers the benefit of the doubt, and taking them at their word, but as he stated, he shouldn't have to pay for a customers careless accident that messes up a tractor once it's out of warranty. Will be interested in knowing the outcome. Just a wild thought here but maybe you could chat with his neighbors (and maybe the local tow companies) and see if they had pulled that tractor out of the pond?? :laughing: IF he stuck it, he had to have gotten help from somewhere!!!!