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Sounds like they screwed up. There must have been damage that they didn't detect when they diagnosed the bad switch. I've never heard of a hazard switch going bad as they are rarely used. Why they were working on the car with the battery connected is a major question. Almost every procedure in the factory manuals calls for disconnecting the battery.
The wiring on the '96 was one of the items Volvo spent a lot of time upgrading for reliability and safety. (According to the "New Model Features" manual for the '96 year.) Had the wireing been modified with some aftermarket equipment? Has the car been in a accident and the wiring harness damaged somewhere, like in one of the fender areas? In working on my car I've noticed the wiring is very well designed and protected. (I'm an electrical engineer that has worked on military and NASA programs.)
I think your only recourse is with the people who were working on your car. I would request that new factory wiring harnesses be installed to repair the damage. Don't let them just patch it up! Otherwise, in my opinion, you are risking loss of the car from a wiring fire in the future.
One last thought, if you discover that the harness was damaged somewhere when you got the car, that made the original switch fail and..., you may have some recourse with the seller.
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'96 965 with 16' wheels at 112K. Had '85 745 Turbo Diesel for 200K.
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