What oversize were the cylinders bored when the engine was machined? The damage is approximately 45 degrees away from the thrust face of the piston skirt, so I'm guessing there was a casting flaw from the back side that did not show up until the cylinders were bored. A small coolant leak from a pinhole or a small crack could partially fill the cylinder with coolant, and the next startup could produce the displacement of the cylinder wall that shows up in the picture due to hydraulic locking of the cylinder.
Jerry

"It is better to be silent and be thought a fool than to speak and eliminate all doubt!" - Abraham Lincoln
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