Wow.

Did your friend fill out an application stating he was the sole owner of the house and the insurance company believes that was a material misrepresentation?
Is there something in the policy that states they only pay for half the repairs when there is a second owner not listed on the policy?
Your friend may ask the adjuster whether the insurance company was collecting 100% of his premium to insure 100% of the house all these years?
If your friend and his mom are both on the deed as "Joint tenants" (if they do that in New York), then each has rights to 100% of the house...
I'm not saying your friend should have a quick consultation with a lawyer to see if the insurance carrier's response is truly "bad faith," but this smells kinda funny from here.