I just had the same thing happen today. I got a call from my wife saying that she and the kids had left the house which was full of smoke and that the Fire Department was on the way to the house.
The reason: My Cobalt Neo-Therm 300w heater, fully submerged, had cracked/shattered inside my sump and been pumping smoke and chemicals through the water and into the air while electrifying the tank. I bought it new from Bulk Reef Suppy in August, installed it in late September, and it just failed disaterously after lasting only 3 1/2 months in the tank!
$150 for a timebomb was not worth it. I'll be going with eheim this time.
10hrs later all my fish are still alive in my 90G w/30G sump. Filled my sump's filtersock half full of activated charcoal, and am making enough RODI saltwater for a 55G water change.
My elegance coral is a loss, and half my softies don't look happy. Fingers crossed.