We deployed a Node.js Azure Web App and defined a minimum of 2 instances (for scalability and high-availability).

It seems like the LB is balancing the load between the instances, but it doesn't react on instance error (crash) and seems to insist balancing the load between all the instances including the one which crashed.
Is there a way to set a fail-over mechanism for high-availability?
The load balancer used by Azure App Service will continue to send requests to individual web servers as long as the underlying virtual machines are up and running.
To workaround the issue you are running into, you can try configuring the "auto-heal" feature. If the scenario is that the app gets "stuck" in a permanently broken state, auto-heal rules can be configured to automatically restart the app.
More details on auto-heal here:
Auto-heal for Azure Web Sites
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