You are not overreacting. What transpired was disrespectful and as your boyfriend, he should have defined his boundaries better.
It is possible that he had made a mistake now knowing how to handle this, if it came out of the blue.
You may want to talk to her instead and let her know that it had made you feel uncomfortable, and find out what she has to say. Try not to accuse her when you talk to her as she may be having a nervous breakdown as a result of the death of her father. In some cases distraught individuals can act out irrationally.