You're not storing the returned value in a variable. There needs to be a second argument in your CharacterIsDead call that will house the output of the function.

From my story editor function topic-
Code
CharacterIsDead(CHARACTER Character, OUT INT Bool)


So in your case, you want to store that boolean, and then check it:

Code
IF
ItemAddedToCharacter(ITEM_KE_TheItem,_Player)
AND
CharacterIsDead(CHARACTER_Player1, _boolCheck)
AND
NOT _boolCheck
THEN
ItemTeleportToPosition(ITEM_KE_TheItem,21.18,1.06,33.56);