Thanks for the replies. The boat had just been serviced by the yanmar agents, so I think that insurance would have a hard time saying that we were negligent. Also I would rather base my decisions on actual risk instead of hypothetical situations. Some other brand sail drives only use 1 seal and seem to be surviving ok.
After having a further look today I think that the inner diaphragm was never installed properly as I cant find the inner steel band. I'm not sure if this contributed to the tearing, but we have carried this risk since buying the boat and it has been ok.
Regardless, I think the boat was repowered in 2007 so 12 years life is reasonable for what is supposed to last 6 years. I think I would rather know that the outer seal is 100% so that I can feel confident in taking it up the coast this summer. It scares me a bit that the only thing in these saildrive boats between floating and sinking is a bit of rubber that is attached to a hunk of metal with explosions and rotating parts inside.
After having a look into it, the pros reckon its a case of pulling the saildrive out from above, giving it a birthday and putting it back in. Ill do a few other jobs on it while its out and then at least we should get a few more years before having to worry about it again. Good thing we were planning on hauling out for antifouling next week anyways.
Oh well, we didn't really need that $1200 and spare weekend before Christmas I suppose....