In every location with which I am familiar the property owner is responsible for the maintenance and repair of water and sewer lines that connect to/from their buildings on their property to the main lines provided by the city (or other government agency). So having a private company that provides "insurance like coverage" for such responsibility is not surprising and based on the above answer's referenced news article it does seem to be legitimate. Like any other insurance coverage the questions that must be asked include: what is my risk (how old are the lines, what condition are they in, what would be my cost for repair/replacement); what is covered; what obligations for service and maintenance are required; and what is the cost. Insurance programs simply spread the risk over a larger base. Those with more risk benefit from those with less risk. So if you have an older residence with older lines in an older development you may have more risk than the general population and could benefit from the insurance program.
This information is for discussion purposes only and does not constitute legal advice nor does it establish an attorney-client relationship. Individuals seeking a legal opinion or legal advice on any matter should contact an attorney experienced in the field of their issue and discuss retaining such attorney to represent the individual.
The letter is accurate - however there are probably many other companies and maybe even the jurisdiction you are in or the water district offering the same thing for a reduced rate. You should also check with your HO insurance and see how much a rider would cost to cover the water pipes - it may be pennies and then all your insurance would be on one place - much less confusing.
Marcia S. Wertenberger