I'm confused too as to why your insurer is paying for engine damage. I'm sure some event we're unaware of.
That said, I only see a couple of ways owning wood boats makes sense.
1. You're financially well off and restoring and maintaining old boats is your passion. You keep them looking beautiful and show them off every chance you get. You don't have hull insurance but can afford any loss.
2. It's an inexpensive way of getting into boating. You don't get hull coverage but get liability, including environmental. You enjoy the boat but realize it's resale value is fast approaching zero so fully expect to have to pay full price on any replacement boat, getting nothing for yours. Meanwhile, you have fun with your wooden boat. I'd be shocked if after a "total" claim you'd ever get hull coverage on that boat again. That doesn't mean though you couldn't enjoy it and take your chances. Just owning a wood boat you can't depend on insurance and you can't depend on resale.