According to an Apple Inc. representative speaking on behalf of its general counsel's office, Apple's protocol when responding to a customer whose iPhone has a triggered external liquid indicator is to say that the warranty is now void and to turn the customer away. The warranty states that it does not apply "to damage caused by… liquid spill or submersion," (from Apple's Warranty) yet, again according to this representative, "Apple's standard protocol" is to not open iPhones and investigate for real signs of liquid damage , such as water damage to the motherboard or corrosion.

In my experience the only way to get Apple to check for water damage is to contact someone high up in the company who will then instruct Apple's in-store technicians to open up the phone. When I went to the store to have this done, the tech reported that he had found no signs of water damage, and the two internal moisture detectors had not been triggered – he even showed me a picture corroborating this. Unfortunately, however, it is Apple's policy that customers are not allowed to have copies of their picture, to be present while the device is opened, or to take their own pictures of the opened iPhone.

So I head to my local Apple store and make an appointment to have a Genius look at my phone. He takes one look at the dock connector on the bottom of the phone and immediately says it has water damage. He checks the water damage sensors and confirms that they have been tripped. Well, that's a problem, since no water or liquid of any kind has ever come in contact with my iPhone. He tells me that the dock connector has, "serious corrosion," "this is the most corroded I've seen an iPhone in quite some time," "serious water damage," "no way this could happen without being submerged in water." I asked him if the damage could be due to condensation or humidity and he said there was absolutely no way, the device at one point or another, "was submerged in water or had water poured onto it." I inform him that isn't the case and he tells me that once the water damage sensor is triggered that his hands are tied.

Source: The Consumerist (blog)