Not sure what the legality is of someone not being able to give us the rental unit but yet keep our deposit??
What does you rental contract state? Is weather/Acts of God mentioned or excluded? Remember, you are in Canada, you are renting in St. Maarten and dealing with someone and a company likely elsewhere. Diamond Resorts can say what they want but you did NOT deal with them, you dealt with VRBO and an individual.
I am sure in 12 years of going to SXM you have never dealt with damage like this and neither has the owner of the weeks/unit. This is an entirely different situation.
You are already mentioning a lawyer. I think that is a little premature and a whole different issue due to the logistics.
You are not the only one in this situation. I do hope it works out but it will likely not happen overnight or as soon as you want it to happen.
Did you read the contract/rental agreement? It may not be worth the paper it is written on or the email it is contained in but that would be something I would have researched by now.