Were you seriously going to mail a 600+ dollar knife, without insuring it????
^ I used to always insure my higher dollar knives, but I decided to change my shipping M.O. a few years back. I personally feel that insuring a high dollar knife, attracts unwanted/needless attention, & let's everyone handling that package, see, that there's a high $$$$ valued item inside, rather than a package without. Besides, I wouldn't want to have to deal with the headache (I've read too many stories here), of the countless hours and energy it would take, for me trying to prove the lost value on an insurance claim; especially for a rare or discontinued, secondary market knife.
Anything of value I ship, is
very carefully packed & taped, in a box, with signature confirmation. And I only use the USPS as my shipping courier, & on occasion, ship using Registered mail. Obviously, as the seller, I'm the party willing to assume 100% of the risk. If a package of mine
were to ever go lost or stolen, I would immediately refund the buyer.
It's a gamble that I'm willing to take. I'm still batting a .1000.
The seller has agreed to provide a full refund through the PayPal resolution center.
I honestly don't think the seller is a bad person, I just think is a little ill-informed and immature.
^ I think this is the best solution!

I also feel that you handled yourself very well here, OP!
I agree with the above- I don't think the seller is a bad person, rather a misguided one in need of a little introspection. Hopefully, he will come to realize/admit his mistakes, come back here & apologize, & then move forward.
There's a steep learning curve here in the selling exchange...unfortunately, many newer member's here, learn what they do reading other member's sales thread's, & not what's in the rules.