A Cat D is where the insurance company don't view the repair as worthwhile. Another words it's cheaper for them too pay out what the car is worth than pay for all the repairs to be done. A Cat D can be something very minor indeed.
And it could well be the engine. It's more common a Cat D is bodywork related. But an engine could well be a Cat D.

In summary:
-Cat A - The vehicle must be scrapped no questions asked.
-Cat B - The vehicle can be stripped for roadworthy parts but what'f left is scrapped.
-Cat C - Vehicle usually has alot of damage but is still repairable and subject too a VIC test it can be used on the road again. Often not repaired due to repair bill exceeding vehicle value.
-Cat D - Simular to a Cat C, It's repairable but repair bill can exceed vehicle value so often insurance companies just pay out. A Cat D is more minor than a C and therefore it does not require a VIC test.

Hope that helps a little?