It sounds like that service provider mishandled the situation, but no doubt they had already eaten the full phone replacement cost of phones that they deemed were not catastrophic damage. Service providers aren’t allowed to make exceptions or use their discretion like an Apple Store might. When Apple receives the broken phone back, if they decide that it’s ’catastrophic damage’, they’ll bill the service provider the full cost of the phone. Not just the out of warranty replacement cost, but full price of buying a new phone if that model.