Why does adding water to a hot pan of oil cause fire?

Oil and water do not mix. Water is denser than oil and will settle in the bottom. When you have hot oil in a pan and add a droplet of water the water will sink to the bottom and rapidly heat up to boiling point and vaporize into steam. The steam escapes through the oil leading to a steam explosion. The explosion takes the oil with it and the hot oil becomes fuel which ignites on the nearby stove flame causing a fire.