RAW, it seems you quoted the relevant part of the rule already.

Destroy Water. You destroy up to 10 gallons of water in an open container within range. Alternatively, you destroy fog in a 30-foot cube within range.

The serpent form is not water in an open container or fog, and again RAW, should not be subject to damage from the spell. Spells don't generally do more or less than they say.

That said, this also seems entirely in keeping with the idea behind the spell (the spell destroys water and the target is water, a stretch but not by far), and D&D 5th Edition is by design more open to DM interpretation than previous editions. This seems like a case of the DM deciding to reward a player for creative use of their abilities, and s/he resolved that use appropriately.

Imposing Vulnerabilities is not (strictly) in the DM's discretion...

Vulnerability is a very strong mechanic, and I would be hesitant to impose vulnerability unless it's written somewhere in the creature's stat block. It doubles damage received, and from the scenario you describe, Lightning Bolt with Vulnerability looks to deal about 56 damage on average for a use of one 1st-level spell (Create water) and one 3rd-level spell, all in two Actions. That is just too strong, taking out a third of an average CR5 creature's HP in one turn (not to mention you can do it again on the next turn, because the creature is still wet).

That mechanic is ripe for abuse (especially when you turn it around, and use it against the players) and I wouldn't recommend it.

... but Dis/Advantage is!

Instead of Vulnerability, give the creature Disadvantage on the Dexterity Saving Throw against Lightning Bolt. It is totally in the rules, and is balanced:

(DMG 239)

Advantage and Disadvantage

... Characters often gain advantage or disadvantage through the use of special abilities, actions, spells, or other features of their classes or background. In other cases, you decide whether a circumstance influences a roll in one direction or another, and you grant advantage or impose disadvantage as a result.

This way, the damage is still within sane levels, but the likelihood of the creature saving for half damage is reduced.