You can exclude the engine (as it will likely not be covered by insurance)
Again this is where your description is not correct. An engine that's attached to the aircraft is part of the aircraft's hull insurance "Agreed Value" and
is not deducted from economic repair calculations, even if the cause of the accident/incident is mechanical failure of the engine.
I think you may be misinterpreting the mechanical "breakdown or failure" exclusions that's common in policies. The usual wording for this exclusion is "
due and confined to (mechanical or other failure)".
The "confined to" part is important. If an engine fails on taxi and the engine simply shuts down -- this is considered a mechanical issue "confined to" the engine and is not covered by insurance.
But if the same engine fails on taxi and burns down the entire plane -- this is not a confined mechanical issue and insurance will provide full "Agreed Value" coverage.
On turbine aircraft there is usually a similar exclusion for engine hot starts. If you screw up a start and heat damage the engine, vanilla insurance of course won't cover it.