Trip Delay is not a lottery ticket. Buy what you need, not what you can, else these benefits dissipate. However, in this instance it sounds as if they did not have access to their checked bags which required buying some clothing, which can be expensive.
This sounds like a fake tragedy of the commons argument. I agree that Trip Delay is not a lottery, but it does covers all "reasonable expenses" up to a cap, it doesn't say "strict life or death necessities". You don't have to sign anything saying you didn't spend even $1 more than you would have without the coverage. As long as the expenses are reasonable, are a result of the delay, and are for the covered traveller(s), I don't see the problem.
For me, a critical piece of the benefit is that in a stressful situation (an unexpected delay during travel), part of that stress is relieved by knowing you don't have to be super-pinchy with your pennies.
To be very clear, I'm not advocating for buying $499 of clothing and cell phone chargers and re-selling them on eBay. That would be ethically sketchy at best and fraudulent at worst. I'm saying:
- stay in the $200 hotel near the airport instead of taking a 30-minute shuttle to the $150 hotel
- buy a new t-shirt instead of re-wearing dirty clothes
- have a meal and a drink at an overpriced airport restaurant while you wait for an ongoing weather delay rather than sitting at the gate
- ...and when you finally land take a taxi home instead of public transport.
That all seems to be within the spirit as well as the wording of the coverage.
Re the OP's claim: if you take taxis from/to IAD, stay in a hotel in D.C., eat three meals, and buy one moderately-priced outfit, you will blow past the $500 cap in no time. Could the OP have managed an overnight stay at IAD by choosing an early-morning replacement flight, staying at the cheapest airport hotel, eating fast food, and re-wearing their clothes? Yes. My question was: why would they when they had up to $500 per person in coverage to pass their delay in a more pleasant and less stressful way?