2003 Toyota Matrix damage to engine?

Engine Mechanical problem
2003 Toyota Matrix 4 cyl Two Wheel Drive Automatic 135K miles

hello,

my matrix had a tune up about 1.5 mos ago. The tech said the coolant sensor would need to be repl soon but not necessary at that time.

the car broke down on 3/2. Towed to a shop where they said the water pump and coolant sensor needed to be replaced. Gave them the go ahead to do both.

picked up the car two days later on 3/4. On 3/5, the check engine light came on. The next morning, while driving it back to the same shop, the car broke down again. Towed back to same shop and was told that there was prior engine damage that they didn't know about before and now are saying it needs a head job.

on a side note, they did refund my $$ for the parts but not the labor on the original repair.

my question: it seems that engine damage so significant that the car needs a head job was either caused by them doing faulty repair work or, at the very least, should have been noticed during the inital repair. They're stating it was there before the car was ever brought to them. What is more likely?

Thanks so, so much for any insight you can offer.