First of all, bad to see such a trip ends this way. Bad thing at all. Sad for all involved. Glad to see that the group stuck together. I saw groups falling apart after a comparable incident. Maybe because you're not in real danger in Europe, when you get stuck somewhere. Maybe the mindset is different in Australia, due to the challenges the country throws at you.
I.M.H.O. it would be really interesting to know the exact cause. Was it really the water (they drove quite some time after the crossing, didn't they???). Has he hit something? Does something just broke? But I can understand if the involved parties are quit. Maybe one should just leave it that way and all need to live with that. Maybe forever, maybe just for now....in the end everybody is responsible for himself to prepare the car, to assess the risk and then you take your decision to drive it or not, knowing that something can go wrong always. But not always it's the fault of others (but sometimes it really is). You're always smarter afterwards. Going offroading always contains that risk of ending up with a damage, costs and hopefully nothing worse...make your mind up accordingly.
"If it runs according to the plan, it isn't called adventure"
Having said that, regarding the insurance...sometimes it is a matter of finding the right words...if possible...when I "produced"this by my own complete stupid driving fault, fourteen years ago...
...I was "driving during a camping event on public accessible ways, where I do not have to pay a fee to be able to drive there". It was an offroad park and we were camping with others and driving offroad. You can access the park without paying as there are no barriers, but you have to pay if you go offroad, of course. The things important to get it covered were: a) not a driving event on non-official roads, b) the ways are de-facto accessible and I do not have to pay to access it, or better no barrier can hold me back if I do not pay. Of course I have paid, but I could have driven there without. That did the trick and all damage was covered.
BTW, we put it back on its feet again, let it standing calm for one night. Checked the engine tubes and everything for oil and water, did a few cold turns by pushing the car in fourth gear without starting the engine. Then I started it and everything was fine. I went back offroading and drove home the next day. Happy, the engine has now 470.000 km...and still running.
AWo