I’m so sorry for your/your D’s loss.
Your D should absolutely apply to selective schools. It is hard to predict how these things will go, so make sure she has a handful of target/match schools, as well as at least one affordable safety that she would be happy to attend.
Does she by any chance of good AP scores in the two classes she received C’s in? I assume two different classes, or is it 2 semesters of the same class?
I agree with coffeeat3 that the HS counselor should cover the friend’s suicide and impact on your D in their LoR. I would lean towards your D not writing about it in her essays or the additional info section.