No they don't. Even waterproof phones damage due to simple water spill get denied warranty (even from Apple).
AppleCare specifically covers water damage of any kind, and is what I would assume OP would be referring to as a "premium warranty and repair service".
The standard iPhone warranty disclaims water damage [1] and Apple has been sued in the past for using humidity activated sensors.
ApplecCare is as much a warranty as their Apple's phone are guaranteed waterproof.
It's marketing.
The 3 year warranty add-ons is an insurance. One can get an insurance for any device.