I'll bet that the fact that he didn't have his US passport with him was the problem.Perhaps a US diplomat who didn't want his weekend spoiled used the lack of a passport as an excuse.Also,why would a US diplomat become involved in an issue involving a car accident? A health emergency or an arrest is one thing...but a car accident with a guy who can't prove his US citizenship is another...IMO.
And BTW,did this associate leave his US passport back in the US or did he just fail to bring it to the diplomatic mission on that day? If it's the former,I'll bet he had a problem getting back into the US.
IIRC, the accident involved minor injuries and considerable property damage and the co-worker was briefly held by the German police. I don't remember if formal charges were filed.
If you carry two passports (let's say US and Italian), enter Italy on the Italian passport and try to return on the US passport, the first thing the DHS officer is going to look for is the Italy stamp in your US passport. Since you don't have one, you will likely have to answer a whole lot of unpleasant questions, at a minimum. With the exception of a couple of Israelis, the (few) people I know with “dual nationality” always travel overseas with their US passport.