I dont know US law, but in Ireland if my engine died while in the custody of someone responsible for repairing and servicing, I would most certaintly be getting a lawyer involved if the garage was not willing to replace/repair the motor, especially because you know what condition your engine was in when you left it into them. Whoever caused the damage will say anything to save their skin.
The car has low miles and is pampered. The car was running great. My timing chains were replaced at 58k miles because they were loose for a while and in danger of damage. They made an awful rattling noise, and still did not snap!
See what the garage intend to do to return the car to its condition when you left it into them. Unless you signed a disclaimer stating that the garage accept no responsibility of damage, I think they have no choice but to replace your engine.
Good luck with getting your baby back in order
