How can they possibly say that his present condition is in any way related to having eaten poo as a puppy (which they ALL do, and normally any resulting upsets are probably unrelated ...)
Doooo make a fuss, and make them say exactly why they are refusing your claim, so that we can all make fun of them and pass on the news ...!!
A lot of companies take you on before they have Vet's reports back, but their caveat surely can't extend after the time when they actually ARE in receipt of any relevant prior information - they should then contact you and let you know about any exclusions they think are appropriate ...
I think this smells a bit like an Insurer trying their best to wriggle out of something (unless there is a conecting thread which you haven't mentioned ..)
I moved to M & S since they give excellent cover and their premiums are very good, but I haven't actually run up against anything like what is happening to you ... it is almost like saying an ingrowing toenail could give rise to a hip replacement - if they want to try it on, they are the ones with all the legal backup and your money and you are just the innocent punter who was trying to do the best thing for your dog ...
Dooo give us more info, and let us know how all this progresses ... I think insurance is a hefty issue and we all need to know if there is a company out there which is trying to wriggle off a particular hook ...!!