Insulation, Radiant and Vapor Barriers - Vapor Barrier over Plaster

We have just had some water damage in our old homes dinning room and the insurance will replace the ceiling and repaper the plaster walls but they indicated that as an alternative they would put drywall up over the plaster walls. I know this can be done but my question is this: We want to take the opportunity to insulate the two exterior walls with blown in insulation but can we just put a vapour barrier over the existing plaster wall and have them dry wall over it? The other option is rip down all the plaster, insulate with standard batten insulation and vapour barrier and put the drywall but this is a lot of work to take down the old plaster and lath.

The last option is the best. Merely drywalling over plaster does not provide a secure surface, especially ceilings. If the plaster is separating from the lath, which occurs over time, the securing of the drywall to the studs and joists is precarious.