Normally with disruption on day of travel it's the airline, not the ticket seller, that should handle re-routing. And certainly not charge for it. I guess maybe this was some kind of complicated, multi-ticket/PNR itinerary?

You won't get any compensation from EU261. Not only is this clearly an event out of the airline control, by canceling and purchasing new tickets the originally booked airlines have essentially zero obligations any more.

I am not very familiar with expedia insurance, but would certainly expect them to cover this. If they don't then please let us know, so everyone else can avoid purchasing it in the future.