Apple care cover battery?

In what instance does Apple Care would cover a battery?
My late 2008 MBP's battery is at 288 cycles and on full charge, its only got 34% (1950mAh) health according to iStat widget. In normal usage, it lasts about an hour. Is this battery defected? And whats Apple Care's policy on this?

You would need to contact Apple in order to get an accurate response. If your machine is still under warranty (in your case, you would have to have the extended AppleCare), Apple will often replace a battery with less than 300 cycles. This is, however, not always the case. Reports of how Apple deals with failing batteries vary greatly from person to person. They are generally considered consumable items. Apple does seem to offer preferential treatment for those with AppleCare however.
I don't believe that Apple actually guarantees that the batteries will last a specific number of cycles.

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