I would agree with you if it's in black and white the agreement I.e you have the paper to confirm that is what is in the policy and that is how much you have been paying for they have no leg to stand on. I would push for the cost and to buy it back with the agreement you want to buy the car back with the aim to return it to the road. But either way if you have it written in paper that is how much the cars valued I can't see they can do a thing about it.
You could have a word with Dan on here see if he can help advise better. He does work for Adrian Flux our Club insurance company, so could be risky but I would say would know more than most of us.