Does car insurance cover engine repair?
Engine repair is covered if the engine was damaged in an accident. Normal wear and tear or breakdowns are not covered although they can be if you buy extended warranty or you purchase a repair plan.
The insurance company can also offer to consider the car a total wreck if they feel the cost of repairing the engine is unreasonable and over your limit. They could offer to replace your damaged engine with a used engine with the option of no increase on the premium.
This is your call on whether to accept it or not. If you do, request for a certification and warranty on the engine.