The actual process, at least through USPS, is for the seller to file a claim (which can be done online). USPS will contact the buyer and either pick up the item or have them bring it in. USPS has different timelines than Ebay/Paypal. USPS gives you 60 days from the date of mailing. From talking to others today, if the buyer brings the item with what packaging is left to the shipper, as long as the item is damaged, the shipper tends to just pay the $100 and keep the item. If the item is worth far more than this, the seller can ask the buyer to send it back. If the item was paid by Paypal and it's been less than 45 days since the date of sale, the BUYER will be required to pay the return shipping. This will void the $100 insurance, but the seller may come out ahead, depending on the item and amount of damage. Regardless of all these scenerios, the buyer must eventually provide a 100% refund, including the original shipping, and this is done automatically if the buyer has filed a Paypal claim. See more info on that later in the post.
Did the buyer intentionally or not break the item because they abused it or didn't want it? Good luck proving that one....as stated before, to protect yourself, the seller must buy insurance.
From the legal question, will the seller have a case to collect the $100 from buyer should the the shipper reject insurance reimbursement because of missing packing materials? From the legal info you provided, it appears so, although collecting might be complicated. Or, what if the buyer refuses to do anything? That's where Ebay/Paypal would be valuable. They will automatically refund the buyer, but not until the the seller receives the item back, and proven by a tracking number.
From the OP, it sounds like the item was worth far more than $100. Unless the item is an item that has no value damaged, I'd tend to have them send it back. The OP would have to elaborate more to make the best opinion.
