I've been doing my own testing since FD is still having trouble with it.
I've used multiple NPCs in various configurations.
In every instance, NPCs added with the 'is friendly' box ticked only attacked monsters and undfriendly NPCs. I even tried evil NPCs being friendly to a good party and they did not attack.
So, make sure the 'is friendly' box is checked and if this issue still occurs, please let me know and I'll have you upload your error logs.
As to the battle continuing after the PC is dead, but NPC friendlies are left alive- DC considers NPC friendlies to be part of the party not just allie in the battle, so it continues on as long as one of the friendly NPCs is still alive.