A New York appeals court has ruled that an insurer's offer of a "courtesy defense" did not shut down its policyholder's coverage lawsuit.
The July 24, 2026 decision from the Appellate Division, Fourth Department, grew out of an unusual set of facts. A cemetery in West Seneca sits beside Cayuga Creek. After the bank near the water collapsed from ground subsidence, the cemetery disinterred and reburied the remains of 215 people - "without notice to or permission from the next of kin of the deceased."
Relatives sued in a case known as the Robinson action, seeking damages for "emotional distress, mental suffering, and mental anguish," among other claims.
The cemetery carried general liability policies from Netherlands Insurance Company and turned to the insurer for a defense. Netherlands first agreed to defend "subject to a partial disclaimer and complete reservation of rights," then disclaimed "any duty to defend or indemnify" the cemetery while offering to keep providing a "courtesy defense" without admitting coverage.
The insurer's argument rested on the policy wording. The relatives claimed only mental anguish, not a physical injury. The policies defined bodily injury as "physical injury, sickness or disease sustained by a person [including] mental anguish, mental injury, shock, fright or death that results from such physical injury, sickness or disease." No physical injury, the insurer said, meant no covered bodily injury.
The cemetery countered with a Funeral Homes or Cemeteries endorsement, which states that " 'Bodily injury,' including mental anguish, or 'property damage' arising out of the rendering or failure to render professional services ... while you are doing business as a cemetery shall be deemed to be caused by an 'occurrence.'"
The court ruled against the insurer on the two central points. It held the courtesy defense did not erase the dispute - a live coverage controversy remained - and it found that whether the endorsement broadened "bodily injury" to cover standalone mental anguish could not be decided on a motion to dismiss, because the language is "susceptible to more than one reasonable interpretation." Netherlands did prevail on one issue: the court dismissed the cemetery's claims for punitive damages and attorneys' fees, finding no basis for either.
The takeaway for carriers and coverage counsel is plain. A reservation of rights or a courtesy defense will not shut down a policyholder's declaratory judgment action, and ambiguous endorsement wording will not be settled early.
