Paul, I suggest your relative gets urgent legal advice. The people who advertise at this Forum are recommended by Jimmy.
If there was a claim on the insurance, I suspect that nothing would be paid as the other party probably did not mention the need for compulsory flood cover for the area. It would not even need to be a flood claim for them to refuse to pay, so $1,600 would be wasted if you can not cancel and get a refund.
I do not think that the other owner can just ‘contra off’ the amount owing for roof repairs.
I think it will be cheaper in the long run to get good advice now, instead of waiting for things to get worse.