Just thought I should tie a bow around this and let you all know how this turned out. I hired a lawyer and had to push the airplane owner to sue me to get AIGs attention. They appointed a lawyer, who was great, and we worked back and forth until we got to a place where we settled. Airplane owner was paid for the dammages and also got a new engine out of the deal. I will be I out a couple grand, but feeling a whole lot better than when I wrote the initial post.
My initial comments/warnings are unchanged. I hope all renters out there understand what is not covered under their policy and how that relates to the aircraft owners policy and obligation to tender a claim. Thanks for everyone who added input to this and helped guide me to a successful conclusion.
Blue skies...