Call his bluff and sue him. You have 3 people, including a cop, who witnessed them admitting that they borrowed your ride w/o your permission and wrecked it. Who do they have that will testify that you specifically gave permission to the person who wrecked your car? BTW, start taping conversations.
File a claim with your insurance company and give them all of the person's information, including his driver's license number and insurance policy number. Your insurance company will go after his insurance company for the money.