I really doubt there will be a concession offered as the option to purchase coverage is made with every booking. This is a case of flat denial to take the insurance, as they had booked through an agency and were warned.
I am sure the you are covered, as every policy I have taken out covers this sort of thing. From past experience with myself and other family members there has been coverage for Not being able to start a trip due to sickness, change of return due to hospitalization, and early return due to death in family. In all cases never a problem to collect, although some companies are slower than others.
On the topic of insurance, please make sure you have proper medical coverage for your trip as well. Once again for the cost of a few dollars a day, one can save financial ruin.