It's been a while, but in the airlines i flew the 737 every engine failure after take off (V1 cuts) was treated as severe damage, and the engine fire or severe damage or separation checklist was done (call: Engine fire, take action). Yes, for a simple flame out as well. Made things a lot easier as there was no differentiation, just one set of memory items and checklist to do. In cruise that would have been handled differently though.
And yes, no N1 and/or N2 was always seen as sign for severe damage. The newer level D sims had actually very noticeable airframe shudder for a seizure, you would notice that immediately.