It's not really a loop hole.. if the indicator is pink what do you want verizon to do? Google it, a lot of people on all carriers have been charged for returning a phone with just one indicator showing water damage with iphones.. This is what insurance is for, you pay a deducible instead of full retail. I think you are hung up on thinking the apple rep didn't lie to you, it's easy to say whatever you want when you know you won't be held accountable for it. I mean verizon is a service provider, maybe you should buy your phones from manufacturers if you think you get a better deal
Have you tried to reset the phone via itunes? Not likely a software issue, but i've seen stranger things with iphones.