Why did the cupboard fall off the wall? Not clear on what the owner’s insurer means by the incident not being related to a specific event, but anyway.
If as you say the insurer has paid out, and this covers the damaged appliances, then it is certainly illegal to hang on to that money. The money was paid out to cover the damage, you can’t just hang on to it.
I suggest the Committee tells the strata manager that ultimately it is their decision. It certainly isn’t illegal. If the manager thinks it is illegal then he/she needs to direct the Committee to the provision that they will be breaching – there isn’t one.