I'm sorry for his loss. Very difficult circumstances, for sure.

I do think an airline is justified in asking for proof of extenuating circumstances in order to reduce the change fee. It sounds like the insurance he purchased will cover the residual fee in any case (and probably would have covered the whole change fee, before it was discounted by AC). That's presumably why he bought the insurance in the first place.

Wishing him and his family all the best.