DFC,
Can understand exactly where you are coming from.
To clarify the flight in question was to be a dual training exercise. Student soloed some time ago and was nearing test, in fact this flight was to be one of a few pre skills test 'tests'. Student went out to start a/c whilst Instructor signed out etc etc.
No written arrangement between FTO and student regarding insurance excess. Not an AOC or passenger carrying flight.
It struck me as an inappropriate way for the FTO to save themselves some cash, for what is ultimately the instructors error