I think many breeders are dubious of vets diagnoses as well, plenty scare new owners to death or have them doing test after test, gosh £3,000 spent on diagnosing allergies!

Many breeders get cynical that vets are just lining their pockets..........
As breeders we can make sure that we choose good healthy lines and suitable studs for our bitches along with all health tests and if we do all that, sometimes bad luck just happens.
Speaking for myself, I have to admit though if one of my pups turned out to have a lifelong problem, (verified by a second opinion from my own vet) I would feel morally bound to refund the price or even have the pup back for me to care for until it passes. (If this happened, I would have your sister on my waiting list for another pup if she wanted) So I don't personally feel your sister is unreasonable to feel the same, I think many of us would.
If only we didn't get so attached to our animals it would be easy for me to just say the dog is not fit for purpose of showing and working as wanted and has an illness, so return it and get another, but I know that would be too hard after a year, for most after a week!
If your sister is not likely to ask if the breeder would refund the price now due to this being a lifelong illness and insurance being difficult, or take things further and the breeder has no conscience to do so either, there is little to do really other than try to move forward with the problem......
Perhaps it would be helpful to talk on the
health board as to how others have coped with their dogs allergies and which insurance companies they have found the best etc as this is a long term problem the more advice the better for your sister and her dog. :-)