Its very simple, really. If Apple suspect physical damage or other kind of abuse, the warranty is voided. Just like with any other manufacturer or item. You can't expect to get free warranty repair on your car after it has clearly been in an accident. If you are unhappy with Apple's decision, its your right to contest it. Whats worthless is ranting about it on a forum.
Really? You seriously think any car in warranty has its
whole warranty voided when involved in the slightest accident? That is obviously not so.
The test is whether the component has been affected by the accident. That is partly what insurance assessors are there to assess.
Accredited repair shops are accredited so that manufacturers can have confidence that the car is repaired properly and any affected components are replaced. Then, by definition the un-replaced components still have their warranty intact.
I agree though that Apple are entitled to avoid warranty repair on a machine that hasn't been repaired, they would need to inspect and repair as necessary, that is, I suspect, what is happening here. So the screen in this case will be left as-is, or repaired at the OP's friend's cost, but it won't be repaired for free.
Equally I don't believe Apple are entitled to void the entire machine warranty unless and until they inspect and determine so much damage has occurred, or might have occurred (eg with liquid damage), that it effectively writes the machine off.