This is appalling! The guy SOLD the bike, not lent it to him for a few days. And don't most insurance policies now state that the policyholder must be the registered keeper of the vehicle? If he sold the bike and has a receipt to show that, there should be no liability whatsoever for the previous owner (I accept that DVLA records wouldn't have been updated in such a short time - the receipt should serve as sufficient proof though).
He was an uninsured rider. That should be the absolute end of the matter, surely...?
Even "driving any vehicle with owner's permission" cover shouldn't apply here as it explicitly states that it doesn't cover a vehicle you own yourself, which, if he'd bought the bike, makes that section obsolete.
Outrageous!!!