Hey @millenniapede!
The only thing I can think of based on your post and tests is that:
Your water isn’t blocking your character… Your CHARACTER is colliding with the water- Block means hard collision. There is a priority: it goes block-> Overlap-> ignore, and it checks both. If ONE is ignore and the other is block, it is block. If one is query and the other is block, still block. The only way for both to be ignore is if they are both ignore- so if it’s going to be query, your character needs to only QUERY that volume, not block. 