Don't mean to worry you but that filter seal falling out might have occurred because it was deformed by the water/oil "mix".
While those seals DO stick to the housing occasionally instead of staying with the filter....
.....(my shop's first personal hand tool requirement for rookie lube techs was a "snot picker" or cotter pin removal hook to "sweep" the seal seat on the housing to find the ones left behind)....
I'm afraid that seal may have deformed or swelled some because of the obvious large amount of water present.
If the water in the oil deformed that seal, I can only imagine what might be happening to to other seals inside the case.
Just sayin'.
Good luck.