If the horse went lame due to bad handling, that"s not Level 1 as I see it. I did hear a rumor that Pat said that your initial Levels horse is your sacrifice horse, but whether he said it or not, it's a wrong-headed concept, in my book. NO horse should be handled to the point where he ends up with physical (or emotional) damage, right from the start.
OP's question: You pass Level 1 on the horse which you trained Level 1; you've got your certificate. You get a new horse, you must train it Level 1, since it doesn't know Level 1, which is the prerequisite for going on to Level 2. THEN, you train it Level 2 & get your L2 certificate.
Horse-logical is the only fair way for the horse.