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Courtesy defense does not end cemetery coverage lawsuit, appeals court rules
A New York appeals court said an insurer’s courtesy defense and reservation of rights left a live coverage dispute over whether mental anguish claims could be covered.
A New York appeals court ruled that an insurer’s offer of a “courtesy defense” did not end a cemetery’s coverage lawsuit, leaving a dispute over potential insurance coverage to continue in court. The July 24, 2026 decision came from the Appellate Division, Fourth Department, in a case tied to claims brought by relatives after cemetery remains were disinterred and reburied following ground subsidence near Cayuga Creek in West Seneca.
The cemetery is seeking coverage under general liability policies issued by Netherlands Insurance Company, after a bank near the water collapsed and the cemetery disinterred the remains of 215 people “without notice to or permission from the next of kin.” Relatives sued in a Robinson action, seeking damages including emotional distress, mental suffering, and mental anguish.
Netherlands first agreed to defend the cemetery subject to a partial disclaimer and complete reservation of rights, then disclaimed any duty to defend or indemnify while still offering a courtesy defense without admitting coverage. The insurer argued that the policies required bodily injury tied to “physical injury, sickness or disease,” and that relatives pleaded only mental anguish, not physical injury.
The appeals court disagreed on key points. It found the courtesy defense did not remove the coverage controversy, and it said whether a “Funeral Homes or Cemeteries” endorsement broadened “bodily injury” to include standalone mental anguish could not be decided on a motion to dismiss because the language is susceptible to more than one reasonable interpretation, though the court did dismiss the cemetery’s requests for punitive damages and attorneys’ fees.