Alright, found a workaround. You need to bring everyone below deck which will get them out of combat (unless you have a summon up, in which case you'll need to get rid of the summon). Then, go above deck and climb one of the ladders and use teleport on Malady to move her to the front of the ship where the figurehead is. When I did this, it got Malady out of combat and then I could proceed normally.
Still, this bug needs to be fixed ASAP.
