OK, I have to disagree with you a little. I don’t and I don’t know anyone who drives down the road with one eye on the gauges. For oil and coolant temp, manufacturers should wire in that annoying little beeper. It will drive you crazy to protect a $50 battery, but the engine, complete silence.
Now for the other elephant in the room, $7300 + tax for a used engine? Are they gold plating it? Get another quote. You should be able to get a new engine for less than that. But the rest of the story is plausible.
The temp gauge can shoot up that fast. I had it happen years ago (on a Honda, as it happens) when a heater hose sprung a leak. Went from normal to H faster than I could get it stopped.
I also think that, unlike a lot of the overheating problems we see here, OP tried to do the right thing. He pulled over, he filled the radiator bottle. He waited for the engine to cool down. Then he drove on, monitoring the gauge, and stopping when the CEL came on. Then after he checked everything again, he went on, and stopped AGAIN to check things even though the CEL stayed off. The only problem was that he didn’t know the gauge was giving a false reading. Sure, it’s fairly obvious to a bunch of us that filling the bottle won’t fill the system, but we’re car nerds.
Point being, if the radiator was defective, and the loss of coolant caused damage to other systems, Honda is responsible since the owner made a good faith effort to minimize damage. We aren’t talking about an idiot who kept driving with a flashing CEL and steam billowing over the windshield because he “had to get to work,” after all.
I think it’s prudent to see the radiator and determine if the damage was external or internal. That shouldn’t be hard. If it was caused by a rock, there should be an entrance hole, and possibly an exit hole (definitely an exit hole if the rock broke the fan blade). If there’s ONLY an exit hole, then it wasn’t caused by a rock, and the mechanic who was already most likely wrong about hydrolocking, is wrong about this too.
At that point, whether Honda covers it or not, at least OP knows one thing for sure - not to let that dealership do the work.
“Hydrolocking” didn’t kill your engine. Operating it without coolant for enough time to blow a head gasket killed your engine. And it wasn’t just the blown head gasket. That’s just one of the things that were damaged. The entire engine overheated, so you can assume that the pistons and cylinders are scored from operating while distorted from the heat.
Adding coolant to an engine with a blown head gasket and subsequently hydrolocking it didn’t do it any good, but it was already dead from overheating it so badly.
Okay, one thing I don’t get. The rock punctured the radiator, how-come it wasn’t having obvious/visible leak until they removed the fan and then it started pouring…
If it emptied the radiator once, it would not hold coolant again. I feel this is a good story Honda is making up, afterall OP is in CA, I am guessing “Hollywood” Honda 
Now back to the insurance. I think if the OP gets the insurance company involved at least they might do an investigation in the issue. Sometimes the dealer might just back off if they hear that the adjuster is going to show up looking for the evidence.
@galant, I’ve seen lots of slow leaks turn to geysers once you start pulling things apart. Tug on something the right way, and a puncture may give-way and rip or tear. Not all that unusual.
But, I agree with you to get insurance involved and look things over. A second look by a professional may help clear up some matters. And, hey, this is why we carry insurance. If the damage began with a one-in-a-million shot road hazard accident, it should be covered under the comprehensive portion of the insurance.
Can the insurance company pay for a new radiator and refuse to cover the subsequent damage?
The OP needs to get their insurance company involved. I had a piece of metal go thru my transmission pan. No problem with the insurance company paying for it. The adjustor will get to the bottom of it.
While its possible for a stone to go thru the radiator. For it to hit the engine or fan and then hit the radiator and sill have enough force to go thru the radiator. Talk about the one in a million shot. Not to mention the sharp angel it would have to make to do this. Also i would think the stone would sill be there. I will bet you the radiator just gave out for some reason. This does not excuse the OP from driving it till the motor blew.
Rod Knox. In this case I think they could try. If I was the adjustor on this. I would really look at what caused the all of the damage. The Op drove it? Yes. Should it have been drove? No. But did the OP try to prevent more damage? Yes. If it did turn out to be road hazard damage. Then depending on the policy. I think some deprecation would be in order.
The scenario brings to mind “For the want of a nail.”
I have to concur with most of the other here that yes indeed your car engine can be severely damaged by a randomly tossed-up-from-the-road small pebble, and the shop is probably spot on about what it is saying. This is something that rarely happens, I understand that is your point of view. You are right, it usually doesn’t happen. But it indeed can happen. Some points:
It appears you are focussing on the “hyrdro-lock” problem, but this was just the consequence; the actual problem was rock, and the radiator leaking coolant and the engine overheating. Suggest you focus on that instead.
There’s no harm is talking to your insurance agent. This is something weird enough that it might actually be covered.
There should be one or more protective shields installed underneath the engine compartment on your car that help prevents this. Compare your car to others of the same make and model and see if something was missing when you purchased it. If so, you might have a valid complaint against the seller. I doubt the seller would be 100% responsible even then, but they might be willing to pitch in a little to get you back on the road if a shield was missing and they didn’t spot it.
If such a thing happens next time, your car overheats, the first thing to check is to see if the radiator fan is spinning. If not, there’s no point in filling the radiator or trying to start it up.
The overflow tank (what I think you are calling the coolant tank) doesn’t reflect how much coolant is in the radiator. Just filling the overflow tank won’t accomplish much if the radiator has leaked all the coolant out already, and is empty.
When they say the engine is “destroyed”, I doubt they could in fact know this just by looking at it. It can probably be fixed. I think what they are saying is that it is probably less expensive to purchase a new or rebuilt engine and be back on the road in a week or two, than paying someone locally to fix the existing engine, which might take months getting all the parts together, etc.
From what you say though, I doubt there is much you could have done in this case. It was just a freak accident.
One more thing, when an engine overheats, one thing the driver can do right away is turn on the passenger compartment heater (like you would if it was winter and 20 degrees outside) and turn the heater fan all the way to MAX. Doing so will help cool the engine coolant.
That won’t help if the coolant has all leaked out of a hole in the radiator.