Yes, I agree it is a terrible thing to be allergic to a pup and not know it is there, the reason for my sceptisism is as follows, and I am thinking perhaps the same thing could have happend.
My pups are generally sold via a waiting list, I had a couple contact me immediately after my last litter, they were perfect for one of my pups, lived near the beach, had woodland and countryside all around their home, wife was a stay at home mum to a 9 & 11 year old they fitted all my critera.
I got to know these people over the next year, the couple came to see my girl and the stud I would be using, checked out all my paperwork and were very apt on making sure all the health checks and everything were up to date on both dogs, everything ran very smoothly. We were over their part of the country one weekend and when I mentioned it we were invited to their home, met their children, lovely well behaved respectful children, I had no worries whatsoever.
The puppies arrived, I sent weekly updates and photo's, and obviously turned many people away who went on to get other pups.
Collection day arrived.............. the family turned up, went through all the paperwork, children loved the pup, then what happens, the girl starts to sneeze, "Oh No says the wife, we weren't sure, but our daughter is allergic to horses and cats, we didn't know whether she would be allergic to dogs or not, but it looks as though she is."

Well, if you could have seen my face, it must have dropped to the floor, not once in the past year had it ever been mentioned that the daughter had any allergies at all, of course they could not take the pup, they had wasted my time and the pups time, I can't tell you how angry I was. If I could have spit blood I would have.
My pup now had no home, other people on my waiting list had bought other pups, I had been let down in every way possible and a little honesty would have avoided everything.
I did eventually find a very good home for my pup, but these people could quite easily have taken my pup and brought her back a few days/weeks later, if the daughter had not been there for collection and began sneezing infront of me. I certainly would not have wanted to give them a full refund for doing this to myself and my pup, which is why I perhaps am in sympathy with this breeder, there are always two sides to a story.