Hi - I think you mentioned at the beginning of all of this that you had the insurance
company surveryor look at the engine failure (?) and he agreed with the mechanic
that it was a mechanical failure.
So if you are insured, just submit the claim and let the insurance
carrier pay for the repairs
or give you a cash settlement. They will deal with and recover from Volvo.
Your policy should cover a mechanical failure / hidden defect. Since it sounds more like a hidden defect, what the settlement is usually based on is you have to pay the cost of the failed part and the carrier covers the costs of all resultant damages/repairs.
If you own the vessel outright (no bank loan or note against it), you have the option of having it repaired or taking cash (so you then go buy your Yanmar). The carrier may let you keep the damaged engine/transmission or you may be able to buy it as salvage
from them. You could then sell the usuable parts to help defray your repowering costs.
Best of luck!