iPhone Camera Repair and Warranty Issue

My iPhone camera stopped working, showing either a frozen or black screen. The Apple Store diagnosed it as a defect and offered to replace the camera for free under the limited warranty. However, they found a tiny crack on the corner of my phone and said the phone can’t be reassembled after the camera replacement due to this crack. As physical damage isn’t covered, they plan to charge me for a full screen replacement $339 or purchase a AppleCare + in order to do it for free.

The crack doesn’t bother me or affect performance, but the camera is vital. I feel forced to pay for something I don’t need just to get the camera fixed, especially it’s not my fault.

Any advice on how to proceed would be appreciated.