AppleCare does not cover accidental damage, and personally I think this is a good thing... otherwise you'd have people accidentally dropping things after about 11 months and 30 days old and getting it either repaired to brand new spec or having a replacement issued...this would then affect AppleCare premiums, and make them even more expensive. AppleCare is a extended manufacturers warranty that extends the original 12 month guarantee to cover any manufacturing or component faults that occur through normal use.
If you're worried about accidental damage have your house and contents insurance changed to reflect single item cover worth X amount for cover on both a fault and accidental damage. New for old is a handy option as well.
I plan on getting AppleCare for my TiBook just before the 12 month original warranty is due to expire (I have no need for telephone support on my PowerBook), I also have insurance to cover my PowerBook if I drop it, lose it, are mugged (unlikely, I'd rather drop and jump on my PowerBook then let some scum-bag have it!) etc etc...
Total cover, and total piece of mind!