The military paid for my losses on a depreciated schedule then sent me a 1099-misc with the insurance amount paid, on line 7. I thought section 7 was reserved for non-employee compensation, i.e. goverment contractors. Should this have been reported to the IRS on a 1099-misc? Isn't this considered a casualty loss? I didn't think that this payout was a taxable item because we have to replace all items that were lost, also we are not in a better position prior to the hurricane, if anything, WORSE!

I believe it should have been reported if you were sent a 1099 MISC. You can find out all you need to know at the IRS website.

No. Insurance claims and reimbursements are not taxable. It's like a court decision (unless it's for backwages).