According to Minta Durfee, Arbuckle’s first wife (& also his wife in the film), the boat filling with water was Arbuckle’s idea and was intended to be a practical joke on Charlie because of his aversion to it. In Kevin Brownlow’s The Parade’s Gone By, Minta is quoted as saying: “Charlie hated water…And later on, he and my husband did one of the most difficult things an actor can do: in the last scene they lay in a boat, pretending to be dead drunk, while it slowly sank in the middle of Echo Park Lake. For a man who hates water, that was pretty good.”
Charlie must have been a good sport because he appears to be unable to keep a straight face as they disappear beneath the surface.
However I find the notion that Charlie was afraid of water interesting because he enjoyed swimming most of his life and gets wet in several other films including A Film Johnnie, The Masquerader (which was released only a couple of weeks before this film), Shanghaied, A Night In The Show, The Cure, The Adventurer, City Lights, Modern Times, etc. Perhaps he didn’t like to be surprised by water, which is understandable.