Help - Item Damaged - Seller Opened ShipCover Claim - Refuses to Refund $ Until Item Returned

I purchased an item on eBay and it arrived not as described. Its a claret jug - the foot is loose, the jug unstable and it leaks all over the place rendering it useless and not "excellent" as described. In attempts to be as honest as possible I contacted the buyer first and stated the issue requesting to return the item because i don't buy things that are damaged. I also stated that because it was not as described i wasn't paying return shipping because the error wasn't mine. (I've returned two items before (they were one purchase) and paid the return shipping to be honest, even though the seller wasn't and had completely misrepresented their items which is angering as I sell on eBay as well and go out of my way to be overly accurate.)
The buyer said it wasn't like that when he shipped it and that it must have been damaged in the mail. He then proceeded to open a ShipCover insurance claim. Giving the seller the benefit of the doubt that it was functional without a broken foot when shipped I verified the claim that it arrived damaged (because it is).
Now the seller informs me that I need to send the item back before he refunds me my money. As it is an issue with postal damage and not an "item not as described" there is no reason for the item to be returned. The item is useless and I'm not paying return shipping (not to mention the duty I was hit with through customs).
What should I do??

Just to doublecheck...this item was not sent through the GSP but was sent to you directly by the seller..correct? The item is not as described because it wasn't in the same shape as it was described and ebay requires that an item be returned in order to get the refund...the fact that there is insurance isn't taken into account.  However, the seller is supposed to pay return shipping but because you are in two different companies the seller can't print a return label for you. If you had check off that the item was damaged in shipping then the case should already mention that the seller pays for return shipping...does it?  You should ask the seller how they want to handle this. You might want to suggest that you can print the label and send them a copy of the receipt and ask them to reimburse you before you send the item back. If you print the label through paypal there is a bit of a discount, you would probably have to use the  Canada Post service expedited USA to ship it back. btw, if it ends up that you don't have to use the label, you can void it in a certain amount of days although it does take some time to get your money back.  If the seller flat out refuses to pay the money back, I would phone ebay and ask them how to handle it. You could use the option of asking ebay to step in but contacting them in person might work better. If you paid duty/taxes when you picked the item up, there should be info on the back of the customs form telling you how to claim your money back since you are not keeping the item.         

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