I’m sorry to hear about your wife’s illness. Under those circumstances, you could have requested a refund or a ticket credit for your wife. Icelandair would have offered her a credit for the full amount, as long as the flight hadn’t left. Refunds are handled on a case-by-case basis.
What led to some confusion is that you asked to use the same ticket and change the name on the reservation. Name changes are generally not allowed on a ticket (airlines cite “security” concerns, but it’s mostly a money thing). If you’d requested a refund and bought a new ticket for your son, I think this would have gone a lot smoother.
Let’s be clear, though: Under the terms of your ticket, you were not entitled to a refund of any kind in the event of an illness. You could have received a refund if your flight had been canceled by the airline, but otherwise, your money belonged to Icelandair.
Still, I thought you were getting the runaround from Expedia and the airline, and given your situation, I wanted to help. Had your written request not worked, and I’m pretty sure it wouldn’t have, then you might have also appealed to an Icelandair executive. Email addresses at Icelandair are the person’s last firstname.lastname@example.org. Here is a list of a few executives: www.icelandair.us/information/about-icelandair/icelandair/.
By the way, I love this airline. It publishes its executives’ email addresses online for the world to see.
I contacted Expedia on your behalf, and it worked with the airline to secure a 50 percent refund for your wife’s ticket, and helped you book a new ticket for your son. You were happy with that resolution.