Hello,
Warranty quote:
This Warranty does not apply: (a) to protective coatings that are designed to diminish over time or batteries, unless failure has occurred due to a defect in materials or workmanship; (b) to cosmetic damage, including but not limited to scratches, dents and broken plastic on ports unless failure has occurred due to a defect in materials or workmanship
And:
to damage caused by accident, abuse, misuse, fire, liquid contact, earthquake or other external cause; (e) to damage caused by operating the Apple Product outside Apple’s published guidelines
I marked the part "outside Apple's published guidelines" because that's probably the case where the store suspects water damage.
All that said, if Apple inspects your device and confirms any damage caused by (anything) stated above. It is not covered under warranty. However if you're 100% positive you have a faulty unit, go back to the store and ask for a thorough inspection that confirms wheter or not it's a manufacturing issue or not. To actually prove it to you.
Even though I don't think the employees at the store would lie to you about it, you still have the right to know what exactly is wrong with proof.
Kind regards,
K