Are there more than one possible reply to the insults? I vaguely remember playing Secret of Monkey Island a long time ago and ending up in a sword fight against either a pirate or the sword master, unfortunately can't remember which one. They threw an insult at me which I didn't have the correct counter-insult for yet, so I replied with another one that was kind-of fitting. And won the match despite using an "incorrect" reply.
EDIT: I'm not sure if the insult was this one, but this is what I mean:
Insult: Only once have I met such a coward! Reply: He must have taught you everything you know. Alternative reply: I'm glad to hear you attended your family reunion.
I don't currently own a playable version of Monkey Island so I can't verify if they work myself.