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In some installations, code requires that no standing water (usually condensate) be present under the water heater. In those cases the condensate drain tube is placed under the dam so standing water can be diverted through the drain tube to a drain line. The dam is installed over the tube, so in the event of a failure the water would accumulate quicker then the flow through the tube and would be able to reach a level of 3/4" in the pan, triggering the valve.
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