Ok, sounds like the insurance you pay for is doing what you pay them to do, cover your losses. You need to know that insurance does not "pay to fix your car". They pay you for losses you incur. There is a difference. First, have a trusted repair facility negotiate for the maximum value of your losses. Once that transaction is done and you have agreed on am amount, they will pay you that amount, minus your deducatible, $500 in this case?? Now with that in mind, you can now choose how and what to fix your car with. You can salvage some parts? In you own the car without a lien holder, you can use that money for booze and hookers if you want. Bottom line is that if you get paid $4125 from the insurance company and it costs you $3500 to fix the car, you walk away with $625.
Some examples. My old Toyota was damaged by a hurricane. Scratches, a few small dents. The estimate to fix it was $1425, of which insurance paid me $925. I kept the money and drove around a scratched Toyota. Totally legal. My daughters 2009 Civic was rear ended and had $8000 in damage. We saved money by reusing things like a dented muffler that still worked fine instead of buying a new from from Honda. Again, legal.
Also, since your Subie now will have a Car Fax entry, when you go to sell it it will be worth less. Guess what? That counts of part of your losses so make sure the insurance company know that. They will pay you for those losses.
I would still hire a lawyer and fight that reckless. Think about it, your insurance goes from $104 mo to $280 mo, for three years. That's $6000+ dude. It's better to pay a lawyer $500 then $6300 in extra insurance