New engine is good for you, pretty pricey for them!
I'm betting it took a while to go through all the channels at the dealership to decide on/get approval for the proper fix. Then they had to order the engine, wait to find out when they were likely to receive it, etc.. And I'm SURE no-one wanted to make the dreaded call to the customer B4 they had all the answers lined up. Then it got put aside (I can call him tomorrow) so you got hold of them first.
Of course it took some time to do the tear-down and check out all the damages before they could even start that decision process. Who knows, they may have even been looking for a similar car to offer you as a replacement & determining if they could get away cheaper that way.
NOW we know which end was leaking (grin). We can also guess the "simple seal replacement" job went to a mechanic who wasn't fully versed in the engine. Other designs/different engines he could get away with 'cheating the Flat Rate" by just popping the pulley - hook out the old seal - tap in a new one - and reassemble WITHOUT the labor of pulling the cam cover & setting the timing. BAD mistake there....
ALSO good for you, it didn't end up "off" just a little & not running perfect, it ended up off a LOT and "grenaded" the engine so you're getting the new one.