That's one heck of a gouge! But accidents happen. Depends on the type of surfacer how that happened. If the cutter is located under the block, I agree the block must have dropped on it. If the cutter is overhead, it's a little more puzzling how a groove that deep would have happened. I can tell you I feel terrible when something like this happens, but it does sometimes. The very worst "screw-up" machining I have personally been responsible for was a numbers matching DZ 302 block for a Z28. Had it in the Computerized Rottler F5A boring mill, all set-up and ready to cut the 3rd of 4 bores on one side. You hit the go button and the centering fingers are supposed to come out automatically and center the cutting head, then release and begin boring. This time, 3 of the 4 fingers came out and the 4th one hung up in the cutter head and didn't center. By the time I realized what was happening and hit the emergency stop it had bored an offset hole, about .200" to one side, about .150" deep. Horrible, horrible nightmare. Much worse than that gouge. We fixed it by locating the bore of the untouched area manually and installing a custom flanged sleeve we had made by LA sleeve. It was quite an ordeal. But we saved it.
Your block, I would probably pre-heat it gently and weld the groove in with a silicon bronze welding rod. Build it up and then resurface it. I would also probably offer to do the bare block work for no charge as a good faith effort to
make it right for the customer. I see no performance issues with repairing it. It's away from water and shouldn't be an issue. Best of luck with it.
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