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buyer problems with insurance claim

I sold an item to a buyer in Macu, shipped the item by 1st class international with auctiva insurance. I made the mistake of shipping by 1st class, but i had insured it and told the buyer this the day it was shipped, The package has not made it to him yet, was Shipped sept 16th. He filed a claim with paypal on Oct 16th, (not ebay). Stating I shipped it the wrong way and he should not fill out any claim form. Paypal sided with him and refunded the money. even with my repeated request to have the buyer film out the form. paypal ignored the request.

the reply from the buyer to paypal. "10/29/2014 09:58 PDT - Buyer: I chose Priority Mail as shipping method and paid for over $40 for a less than 2 pound small package, while the seller used 1st Class Mail which cost less than $15 to ship it. The 1st Class Mail is not guaranteed to be delivered, and the package is lost on the way. I want a full refund from the seller, but the seller unreasonablly asked me to do all the insurance claim (against Ebay and USPS policy) and refused to give me refund. I have to ask you to decide this case. The tracking number is LJ158076650US by USPS 1st Class."
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