requested an exemption to Part 91.105 which requires a crewmember to be at their station during flight. Since he would be leaving his required station during the flight he would have violated 91.105. The FAA denied that specific exemption request and not the flight.
Agreed. The FAA did not object to the flight, but they refused permission to violate a regulation during that flight. If the pilots had gone flying, remained at their station during the entire flight, the insurance would have been in force, and had there been an accident, the insurance would be required to pay. But it is obvious that when the pilots took off, they intended to; a) leave their required crewmember stations, and b) knowingly violate a regulation for which an exemption was not granted. Were I the insurer, I'd walk away from any claim on that basis - the pilots did not follow through on their commitment to operate the airplane safely, and it was deliberate.