When you say you went online and temporary insured your friend, I am assuming that was on the Motability account?
I take it you had to give the friends driving licence information?
did you not get a confirmation that he was insured\? Either by email or from the websit?
Im sorry to say, if the Motability insurance company refuse to insure you, you can’t get a Motability car and it sounds like that’s what they have done, hence the collection of the car.