The performance of polyurethane pipe insulation used in district heating and cooling subjected to underground water attack has been investigated. The objectives of the experiment were to measure the effective thermal conductivity and the moisture absorption rate of polyurethane pipe insulation under conditions similar to those found in operating systems that have failed and to determine the drying rate and the extent to which the insulation can be dried out once the source of moisture is removed. The insulation was tested at pipe fluid temperatures from 35°F to 260°F (1.6°C to 126.6°C). The surrounding water was maintained at temperatures from 46°F to 100°F (7.7°C to 37.7°C) to simulate the possible conduit water temperatures. Under heated conditions, water absorption continued for 70 days before a steady state was reached. The effective thermal conductivity of the wet polyurethane is 14 to 19 times higher compared with the dry insulation values. Under cooled conditions, water absorption was completed in seven days. The effective thermal conductivity of saturated polyurethane was 50% to 200% higher than that of the dry polyurethane and was typically only about 10% of the value under heated conditions. For both heated and cooled conditions, the increased effective thermal conductivity during submersion demonstrated the tendency to return to the value before submersion after drying.