Q: Here’s a hypothetical question regarding AppleCare for the iPod: Let’s say, for example, that my three-year-old grandson throws my new iPod with AppleCare into a swimming pool… would it be covered by AppleCare?
A: Unfortunately, no. AppleCare is exclusively an “extended warranty,” meaning it only extends Apple’s liability for material, manufacturing, or other hardware defects not caused by the user. This is noted in further detail in AppleCare’s Terms and Conditions (PDF)… See Section 2-e-v.
For comprehensive, kid-proof protection like you’re looking for, you’ll need electronics insurance from SafeWare or a similar company.