An oil burner assembly is sometimes referred to as a gun. I suspect that what your insurance company is saying is that they will pay for a replacement oil burner assembly but not for a complete boiler.
Not having the slightest idea of what wire was cut or where the wire was I cannot give a definite answer. It may have been the power cable to the existing oil burner and they cut it to prevent someone from just closing the switch and re-energizing the burner.
Since you had this unit serviced three weeks prior to the furnace explosion (the correct term for a "puff back") the service company should be liable for the damages.