Yeah, I got the same impression too.
Again, as others have stated, having all veterinary fees waived and replacement cost of the dog would seem to be sufficient to me.
The original post made it sound like you were considering suing the vet because the animals death (albeit through negligence) made your sister feel bad. If so, then I think that is unreasonable.
Extending that logic means that your sister should also sue anyone who calls her a bad name, or her boss if he yells at her.
Just because your sister is emotionally attached to the dog shouldn't make a difference. Maybe I'm emotionally attached to my car, weird as that may be, should I sue my buddy for 'emotional stress' if he totals it in a traffic accident?
Your/her emotional attachments are your own problem, no one elses, as far as I am concerned.
Whether the vet has insurance is irrelevant. It would only matter if you were, in fact, attempting some sort of shakedown (i.e. you wouldn't feel bad about taking money out of the insurance company's pocket whereas you might fee bad taking it out of the vet's)
Finally, consider the consequences. If you take the vet to court over emotional damage, and lose, then maybe the vet wins a counter-suit (is that the word?) for all the time and money you made him waste on a frivolous lawsuit. If I was the vet, that is the first thing I would think of, if for no other reason than to send a very strong message to the community that I was not a push-over.
In short, while these events are unfortunate, you and your sister have been treated fairly and with respect. Don't drag things into the mud - you might not like what you find there.
By the way, failing to occlude the ovarian and/or uterine arteries are known complications that occur at a certain rate. Every vet, if they do enough spays, will have it happen sooner or later. My point is, one botched surgery does not constitute incompetence. Negligence in the case, yes, but not incompetence. The regulatory body is likely to be interested only in issues of overall incompetence rather than individual cases. Hence, making a complaint to the vet's governing body is unlikely to have much effect unless this vet has a history of higher-than-average adverse events.
Fat