Wedding Venue Refusing to Refund Money Owed Due to 'Damages'

Undervalued

T.T.D said:

Sounds like this venue is trying to get you to refurbish its premises in my opinion.

The venue is not entitled to betterment. 

Indeed.

However, assuming the OP's party were at fault, the venue is entitled to the full cost of properly making good any damage and that can include compensation for any losses from the rooms being out of use whilst this is being done.

Undervalued

Malthusian said:

If the wedding insurance covers your accidental damage to the blinds, then if there was other accidental damage, does it not cover that as well?

If I understand your post correctly the insurer has said it would, but they think the venue is trying it on as it's either made up or normal "wear and tear", so they're not paying.

In which case you should tell the venue to take it up with the insurer.

I struggle to believe that the insurer would say that you aren't responsible for the hotel's costs incurred by smoke damage. (If there are no costs that's another thing.) The insurer sounds on firmer ground when saying that a coffee stain is not grounds to replace an entire carpet and underlay.

They don't have to. Their claim is against the OP who, in turn, may be covered by his insurers. It may be more expedient for them to deal direct with the insurers, if all parties are willing, but the hotel can't be forced to.