Originally Posted by FakeName
Yes, they will.
My 525 was stolen and recovered with damage, insurance paid 100% of the parts/accessories/labor without any hassle. I had an itemized list with parts/labor with photographs of the bike (taken from ride reports).
A very good friend of mine went this route and his insurance co would only pay him $10/hr labor if they were cutting him a personal check. If they paid the shop direct, they would cover the shop's labor rate (which was more like $65/hr iirc).
Insurance regs vary widely by state, so maybe this is the difference? You're in the same state as the OP.