I'm going to guess your overflow tank and sensor are similar to the ones I've seen on both '87 and '92 300D cars. The sensor connector is on the engine side of the tank and has two mammoth pins.

When I got my '87 300D, I found the sensor disconnected and of course the light would never come on. I wanted the sensor to work since it is highly important on an aluminum head car, so I plugged it back in. This resulted in phantom light actuation.

I kept plugging and unplugging the thing and cleaning the connections - now it works fine as far as I know.

So if you are getting phantom indications, try cleaning the electrical plug connection on the side of the overflow tank.

Might help in your case too.

Ken300D