Over a three day span beginning December 17th, a Federal court in St. Louis will hear legal arguments from the NPS special deputy receiver and from banks that served as NPS trustees at some point during the past 30 some years. Initial legal briefs have been filed, and response briefs will be filed. The arguments concern the interpretation of Missouri’s preneed law, Chapter 436, and the duties that the banks owed to NPS, consumers, funeral homes that were providers of NPS contracts, and funeral homes that were sellers of contracts rolled over to NPS. Doug Cassity, once an attorney, has offered his own interpretations of Chapter 436 and the duties owed by trustees.
In a habeas corpus motion filed October 21st, Mr. Cassity argued that NPS could withdraw from trust all funds in excess of the face value of life insurance held by the trustee. Three days later, Mr. Cassity filed a response pleading that argued Chapter 436 did not require the trusting of 80% of the consumer’s payments. Mr. Cassity’s arguments demonstrate how NPS exploited ambiguities and gaps in three key provisions of Chapter 436.
Section 436.027 authorized a preneed seller to retain the consumer’s payments until 20% of the sales price had been received. The NPS argument is that this section did not go on to state that the consumer’s next payments had to be deposited to trust. If the drafters wanted consumer payments to be deposited to trust within a certain number of days, they would have said so.
Section 436.031.3 authorized the seller to withdraw income from the trust so long as the trust’s market value was not reduced below the trust’s aggregate deposits. The law doesn’t provide a definition of market value, and NPS claimed that the policy’s death benefit was the account’s market value, and all funds received from the consumer were income.
Section 436.045 authorized the trustee to distribute an account’s deposits to the seller when the funeral provider provided notice of receipt of payment from the seller. According to Mr. Cassity, when an insurance policy was purchased for a preneed account, NPS had satisfied its liability requirements and could withdraw the account’s funds from trust. Chapter 436 did contemplate insurance, and consequently did not distinguish paid in full policies from installment policies, or whole life insurance from term life.
Rules of statutory construction dictate that individual sections of a law be interpreted to give a consistent meaning to the law as a whole. The intent of Senate Bill No. 644 was to allow the seller to retain up to 20% of the consumer payments, and then trust all subsequent payments until the contract was either performed or canceled. In the case of a third party seller, the trust distribution was to be made in the form of a reimbursement. Overall, it was an awkward mechanism that required the seller to ‘go out of pocket’ to pay a funeral home provider, and then seek payment from the trust.
Depending on the rulings that come out of the December hearings, banks will be asked at trial how they administered their NPS trusts in compliance with these three Missouri statutes. Bremen Bank, the small bank serving as trustee when NPS converted the whole life policies to term insurance, has settled with the SDR rather than defend its conduct.