Glad the shop pointed out the error and admitted to it. Kudos. Garage Keepers insurance does handle claims for resulting damage. Insurance wouldn't cover the cost of re-doing the timing belt but there would be liability coverage available for resulting damage ie the ruined engine. You also have the right to choose who repairs your vehicle in that scenario. I think it's a positive that the shop has copped to the problem and that may sway you to keep working with them and that's ok if you have a good relationship with the shop, they are reputable, etc. But you do have options when things go sideways.