You use this phrase to politely explain that someone's friend or family member has died:

How do you deal with it when someone you work with has suffered a loss?

We've all suffered a tremendous loss in the passing of Dr. Mehta.

In general, you can talk about someone's friend or family member dying as "a loss":

I'm so sorry for your loss.

This is a very polite way to talk about death to a person whose loved one has died. It would be very rude to say something like "Sorry that your friend died."