While I am not familiar with the well construction rules in anywhere near every state, I am familiar with a a few of them and requirements for well liners I am familiar with generally indicate using enough bentonite, or some other approved grouting material, to make sure you are preventing non potable water from entering your well - and more specifically the surrounding ground water table.
If you have a hole in the 7" well casing, or the integrity of that well casing has been compromised in some other way, that is allowing surface water to enter then you want to seal that compromised section of the 7" well casing off with bentonite or some type of approved grout if possible. Do you happen to have a copy of the original well drilling log or report? If I, or maybe other people on this forum in the well drilling industry, knew the construction and formation of that original well it would be hugely beneficial for giving you helpful recommendations.