Regardless of what the seller says today you should file a dispute with Paypal, who will then in turn technically "hold" the money in a sort of escrow until you receive the bag. If you do not receive the bag, Paypal will release the funds to you, but at least this way you will be guaranteed that you get your money. That is, of course, assuming there are enough funds in the seller's account.
There are a whole lot of strange occurrences with this transaction. Think to yourself; if you were a seller, would you ship an expensive item (in this case $1,200) and only insure it for $500. I think NOT. Also, would you stuff an expensive bag in a mail box and not bring it inside for scanning. As an experienced selling, as this person seems to be because they have a store, they would know better that you need tracking and signature confirmation for any Paypal claims. Nothing sounds right about this. Even down to the free shipping. Maybe I am just being skeptical, but with all the scams on
eBay these days, I would act now and laugh about it later if and when you get your bag. Just my 2 cents here, but I cannot stress it enough.
Just a thought that I cannot get past. You paid $1,200 for the bag. It was supposedly shipped and not received. Seller is willing to give you half back at this point ($600) until the bag arrives. Seller now has $600 of your money after refunding you half. Now the bag never arrives to you let's say. The seller then files a claim with the post office for $500, which is all they can claim by printing the label on line. They get their $500 from the post office and now they have $1,100 in cash and still have the bag. This scenerio makes the most sense to me seeing as NOBODY insures a 1,200 bag for 500 and does not bring the package in to be scanned. Sorry, but I just cannot get past this. You are being way too nice and accommodating here.