This is a proper nightmare situation for anyone to have to deal with and I am really sorry for you. One of my colleagues went through the exact same thing with a Mini Cooper, twice. Second time he told the insurers he didnt want it back.
Just a thought-on the 7 day insurance from VW, do they not offer (as many insurance policies do), a replacement new vehicle if it is stolen and it is less than 12 months old. Obviously a 7 day policy and a 12 month period are mutually exclusive but usually even short term policies are written on the same, or similar, wordings as full term policies.
Indeed, the 7 day policy is there to protect you for that period whilst you sort out your own insurance, why should it not cover you for this type of loss.
I'm an Insurance Claims Manager and I would be happy to review the policy for you. My insurance has the 12 month clause and therefore GAP insurance is not required until this expires. I didnt get the 7 day as I lease the car.
Keep safe
DJ