While I don't know the particulars of this situation, I suspect the
actuality is not that the insurance company will not allow euthanasia, but
that they will not pay off if the horse is euthanized. Still sucks, but not
quite the same thing.
If the owners would/could sacrifce the payoff, the suffering of the
horse would end. I have, unfortunately seen this scenario before.
--C.M.Newell, DVM