From Handbook of Hydraulic Fluid Technology

Fluid can bypass a filter element for many reasons. Improperly sealed side seams and end caps on the filter element itself is one very real possibility. In addition, the element can rupture during operation or be damaged before installation, and the result will be high bypass flow. However, the two causes which are probably primary are a poor fit between the element and the housing, and a bypass valve which is poorly designed or stuck open due to silting.

More about the book Handbook of Hydraulic Fluid Technology

"My oil analysis data indicates that there is water in one of my gearboxes. I have put a portable filter cart on the gearbox, but about every three hours the full indicator on the filter pops up. I have changed the filter twice and can't really detect the presence of that much water. Is it possible that my filter won't take the water out of the oil that I'm using?"

If you are using a standard filter for particle removing, then the answer is no, it will not remove water. However, if it is a water removing type filter (superabsorbent type) then these are useful for removing small amounts of emulsified and free water after accidental ingress.

If you have significant amounts of water, in excess of say 0.1 percent by volume, then you need to address the root cause of the water ingress and then dehydrate the oil or replace it depending on the volume. Too much water is subjective, but technically, if there is visible emulsified water (cloudiness of the oil), this is too much. As such, there is an ingress source that urgently needs attention. Typically water is an issue that depends upon the unit location (indoors/outdoors), proximity to any process water, or any washdown activity that may take place near the gearbox, or any steam source in the vicinity.

The use of a desiccating breather or expansion diaphragm type sealed unit may also reduce the moisture ingress, as will deploying better quality seals, and educating the personnel responsible for washdown activity.