Can Second Chance be used to stop, or be used against, unblockable damage? If so, why or please explain how. I want to make sure I am clear on the reasoning.

Yes because its not actually blocking anything.

Damage is dealt 1 instance at a time and when one instance of damage would defeat a character instead he heals for 5 (after being assigned enough to be defeated) and discards the upgrade. You then continue with the next damage source, i.e. another die that wasnt a modifier.

At no point in that interaction did any damage get blocked.

Ok cool, thanks.