Although a delivery date is usually not guaranteed (though sometimes it is, some folks pay extra for overnight or 3 day delivery and expect that) but in this instance we are not just declaring it a DELAY the company itself is declaring it LOST because it was delivered to someone else.
That means this unit is no longer guaranteed to be in the condition it was sold in if it were ever to be retrieved (which it won't be because the company just wrote it off). This alone warrants a full refund.
Yet the fact that it has been declared lost means the company will issue payment to the seller based on the insured value. The buyer should not have to wait around for this.
It's not "just life" with any known shipper. The seller chose one courier and HE contracted a service with them, not the buyer. The courier is in breach of contract with the seller, not the buyer and the seller is in breach of contract with the buyer not the courier.
So, the buyer should immediately receive a refund, the seller should immediately receive a refund and the courier should suck up the costs.
In reality, the seller has to deal with the courier. That is unforunate but there is no ethical reason for witholding the money from the buyer.
I don't think anyone was mentioning going berserk, but there are ethical ways of doing business (if not legal) and in this instance, the buyer is the most aggrieved party and he should be compensated first. Again, the item never arrived to his door as contracted yet HIS money reached the seller as contracted.
It's a no brainer on how it should go, whether it will is a different question. This is why I always insist on insurance when selling. If the buyer doesn't pay the insurance he assumes the risk at that point, particularly if they also want the package marked down. No insurance or an undervalued item = I am guaranteed the money remains in my hands, the buyer now assumes any and all risks.