I once put my phone (not an iphone) through the washing machine.
I took it to the shop and told them it was "broken". They sent it away – and it came back unfixed "water damaged". There is a special sticker which changes color when it gets wet.
I suspect these people have done the same thing, but don't want to own up/ pay for a new phone
I worked out in the gym with mine on an arm strap, and then stretched and chucked it in my pocket whilst walking up the 15 or so stairs back to the changing room.
It then decided to die, and Apple concluded that it was water damaged. So, in reference to the crass comment above, it has not been submerged, it has not been sprayed, it has purely been subject to low humidity for a short time (circa 20 seconds).
Personally I didn't expect a phone to be that pathetic, but hey, it seems that Apple do.