He's one unlucky guy!
Highway are right up to a point, mechanical failure is never covered. However, the resultant damage should be covered. If, for example you have a blow out, and crash into a tree, if you're comp, they should repair the all the damage, except the tyre that blew out - thats not covered and your responsibilty.
The racing bit it BS too. It will say in his policy booklet that racing/pace making/timing is not covered. However, it is very unlikley it says in his policy booklet, that by using his car in an uninsured manor (ie on track, or @ the pod), that this instantly invalidates the rest of his cover.
However, where he has caused himself a major issue is by "telling a little white lie" to the insurers, this beyong anything wlse will cause him the biggest problem.
Interestingly tho, in his letter from Highway, they advised they have removed the T-piece from the car, and are keeping it as evidence!!! If there are refusing the claim, they have no claim to that property, and therefore that is technically theft. Personally, I'd be using this agaisnt them.
BTW for anyone else who's insured with Highway, don't worry they aren't always that bad! - Just don't lie to them, or any other insurers for that matter!!