Is there a way to recover data from a damaged, dead iPhone?

There is no way to recover data from a non-working phone. Backups most be made before the disaster, after is too late. Which is unfortunate, because you could have enabled automatic backup and it would back up each night.

Sorry, but there is no way that you will be able to recover data from a water damaged phone.

Nope.

And if they could extract any data … what are they going to do w/ the encrypted data ???

If you had iCloud Photos turned on, you might get photos and videos back. Not from the phone, but from iCloud.

https://www.icloud.com/

Well, there is, but you have to go to a third-party store and if they are talented enough, they might be able to find the short. Or they could recover the NAND chip and get the data