I've already stated my empathy to OP, a damn shame PayPal failed him.
Reverb helped me on one disaster; PayPal saved me on Fraud. Thank goodness I did not 'send money'.
1. via reverb, a McIntosh MC2002 was not packed properly, (single box, only collapsible air bubbles inside with a 55 lb object moving about) arrived seriously damaged.
Seller had bought insurance from Reverb. Reverb covered seller 100% (UPS certainly would have denied a damage claim based on improper packaging). Reverb contacted seller and offered me a full refund, or $300. credit, keep it. A tech I know wanted to fix it, so I took the credit, he bought it from me. Happy ending.
2. also Reverb. bought an mx110z in Spain. used Paypal thru Reverb (thus it was for 'goods' not friends and family, PayPal funded by my credit card. I suspected 'too true, might be fraud' but trusted my protection setup.
'Not Shipped', not a word from seller, zero response to my messages to seller. Requested refund thru Reverb (easy). Reverb could not get a response from seller and told me "make your claim thru PayPal because that is how you paid, (their contact info is ...., let us know if you need help with that") Filed an 'Item Not Received' with PayPal.
Now, even though Reverb still said 'not shipped', via PayPal, there was a tracking link, and a full FedEx history: Now I got worried, I've been thru that once before. Remember, Item was in Spain. purchased on the 28th, false shipping said left Pennsylvania, USA on the 29th .... went here, there, delivered (no signature).
Without any delay PayPal gave me a full refund. Couldn't have been easier, how lucky I am,
as OP showed, even proper coverage can fail you, and it is crazy how they can create these fraudulent shipping histories.