''Aahh…paragraphs, how I miss you so… :>)''
Seriously, a little formatting goes a long way in helping with readability but I understand you are upset .
Now on to the good stuff. Your phones behaviour certainly seems like water damage but the only way to know is to inspect the phone directly. Unfortunately, Apple didn’t provide you with any proof (a few pictures would have been nice!). It is also possible they confused your device/ticket with another one. Now that you have your phone back, you could open it up yourself and look for the LDI stickers to see if they are red. Or you could drop by a local shop and have them take a look. However, water damage can occur without “tripping” the LDI and the opposite is also true, for example., humidity.
The only way to know for certain is to closely inspect the logic board after the shields have been removed. This falls more into the domain of a micro-soldering repair. If the phone was truly water damaged, it may not be repairable and many shops won’t even try although they will work on it to recover the data if that is something you need. The reason for this is that most water damaged phones that have failed tend to have all kinds of issues, some of which pop up later on making these devices too unreliable to offer a warranty on.
Now if there is no real water damage (yet the LDI’s are red), the phone may be repairable but only a thorough diagnostic will be able to determine that. Most shops will charge you significantly less than what Apple is charging so shop around.