Of course, they will declare your car a "total loss" but should allow you to buy back the car cheaply while still paying you a pay out for the loss - they just deduct the buyback amount from the payout. It won't be anything near what the car is worth but should be enough to cover a large part of the engine rebuild if necessary, especially if you can do some of the work yourself.
ps. my car was hydrolocked in a very similar manner in a parking lot during a flash flood, so I know what you are going through. Good luck.
