You're all reading this the wrong way.
This is no different than if you lend your car to someone else, which is effectively what happened here. Forget the fact the new owner paid for the bike, technically it was still insured under the original policy and as such that will always remain the policy in force, if there is no other one available. As such, that insurer is responsible for paying out in an accident to all third parties involved, and since the policy holder broke the terms of the policy then they are completely right to come after him for the money.
Is it a harsh lesson? No doubt. Is it the right thing to do? I'm not sure. Are they justified in doing do? Absolutely.
Why did he not cancel the policy? Why did he not check the other guy had insurance? Why did he not ask to see his licence? This could've been so easily avoided. One guy here was a criminal, but the other was a fool.