That is odd.
I have had a phone lost and never ran into the contract problem you mentioned in your opening statement.
My cell phone company canceled out the serial number attached to my contract. My number was ported to my new handset with the new serial number.
I'm on the same plan. Only additional cost was a new handset.
And did the new handset cost 5 times more than the original? They usually do since the phone companies know they already have your biz.