The BAP covers accidents and losses that occur within the coverage territory and the coverage territory is defined as the United States, its territories and possessions, Puerto Rico, and Canada (and anywhere in the world under certain circumstances). And, the BAP also covers loss to or accidents involving a covered auto while being transported between any of these places. The accident in Canada is covered.

Whether the car was to be domiciled in Canada is mainly a rating issue and/or a policy type issue since Canada has its own insurance system that is different from the U.S. version. Perhaps the insurer is thinking about out of state coverage extensions or liability determination lawsuits, but those are items concerned with the liability of the insured for bodily injury or property damage. But, if this is just a physical damage claim, and if the car was a covered auto at the time of the accident and the insured has the proper cause of loss coverage (probably collision coverage based on your description of the loss), this accident will be covered.