2 sides to every story.
The problem is surgery from what I read might fix the problem. While that is the case the MBF cannot make payment. The trustees are legally bound by the rules and would have had their own medical advisors and lawyers look at the case. Unless you can produce a letter from CASA saying under no circumstances will we ever re issue your class 1 which you don't seem to have the trustees legally cannot make payment. What you seem to have is a letter saying at the moment we will not reissue the medical but maybe with surgery we might.
The trustees have their hands tied. Knowing the current trustees and having been one myself I can assure you that if there was not some issue within the rules, they would have made payment.
I do agree than non members should not be trustees and look forward to the 2 current ones leaving once and for all.