What recourse do I have with a mechanic who got into a car accident with my car?

The situation is I went for a smog check on my car that I drove to CA from out of state on Saturday. I knew I needed a bit of work done on the exhaust sensors, but it didn't effect the driving so I never fixed it before. Anyway, he charges me $65 to tell me the exact same thing and says he'll need a whole day to work on it and to come back on Monday. Monday morning comes and I drop off the car. The mechanic is not there yet and I drop off my keys and the invoice from Saturday.

While at work (I work long days) I receive a call from the Police saying my car had been in an accident with significant damage but the car can still move though he thought the transmission may be damaged from too much use. He said that he had all of the involved parties information in his police report and to contact my insurance company. His call was after the mechanic's working hours and I was to go the next day and pickup my car.

The next day I rode my bike to work and then rode it to the gas station afterwords. (Cold ride in January) When I went to the station after work the mechanic was gone and the cashier (separate gas station/mechanic shop I guess) would not give me my car and I had to come back the next day. When I did so the next day he said that the other driver had been at fault (which the police officer had also agreed was the case) and he therefore was entitled to his money for work done on the car in order to release it. I had gotten a ride that day and saw no other way so I paid by credit card and took the car home. My insurance company says that by having liability only they cannot do anything for me, but will look into it to work with the other insurance companies, which I realize I suddenly had no information.

Thus my questions would be general in advice of what to do? Is the mechanic's shop liable in case the other driver does not pay and a general business risk.

Finally, I am now driving the car that has no license plates (why the car was at the shop as you need to get it smogged first in CA). I need a vehicle for work but am concerned that I may do additional damage/not be in compliance if I continue using the vehicle.