Death Care Compliance Law

Death Care Compliance Law

Preneed: A Pandora's Box of Problems

William Stalter is the founder of Stalter Legal Services and the Preneed Resource Company. Bill focuses his law practice on preneed and death care compliance, serving banks, funeral homes, crematories, and cemeteries. He has written multiple published articles

Stay Out of Jail Card: A Workout Plan to Keep Consumers Whole

Posted in Compliance

A few weeks ago we reported on a legislative auditor’s recommendation to sunset the West Virginia Funeral Board because of its poor handling of consumer fraud complaints.   Criticism of the Board focused primarily on the Harding Family Group matter, where Chad Harding had filed fraudulent insurance claims of almost $1 million.  But, the auditor’s report also referenced a complaint against the Broyles-McGuire Funeral Home.  Independent news reports suggest that Joel McGuire made fraudulent claims of almost $75,000.  Accordingly to a recent press release, Mr. McGuire has since pled guilty to wire fraud and could face 20 years in federal prison.   So, how is it that the funeral director who steals $1 million can avoid prison while the funeral director who steals $75,000 faces 20 years in the slammer?     Mr. Harding, with the assistance of an outside investor, restored the stolen funds.  In contrast, Mr. McGuire locked his funeral home’s doors and fled the state.

With regard to either of these situations, the WV State Board never appears to have been an active player in seeking a workout plan that would protect the consumers.  A plan to replace stolen consumer funds would be dependent upon the continued operation of the funeral home.  That may also require leaving the funeral home in the control of the owner.   The alternative would be a fire sale of the funeral home assets that would bring pennies on the dollar.

In its own defense, the WV Funeral Board claimed it is the last to learn of funeral directors’ fraudulent conduct, and suggested that it was conserving resources by waiting to take action after the conclusion of other agencies’ proceedings.   Bull Hockey.   For the protection of industry consumers, an industry board of funeral directors should assume a proactive role once fraud is discovered.  Funeral directors will understand better than the Attorney General’s office about the value of a funeral home operation and whether a workout plan could be successful.

West Virginia Funeral Board: Flagged for Expedience

Posted in Associations

The West Virginia Legislature’s Audit Office has given that state’s Funeral Board a failing grade.   The audit report was covered in detail in the September 25th editions of the Memorial Business Journal and the Funeral Service Insider, and we recommend both newsletters to our readers.  Hyperlinks to the newsletters are below.  In a nutshell, a former president of the Funeral Board made fraudulent death claims on about $1 million of Homesteaders insurance policies.  Homesteaders sued the funeral director, and won a judgment.  With help from a local businessman, the funeral director settled with Homesteaders.  The West Virginia Attorney General’s Office brought a separate lawsuit, and the former Board president reached a settlement with the Attorney General.   Watching the funeral director wiggling from the hook of responsibility, the West Virginia Funeral Directors Association pressed the State Board to take action against the funeral director.

Eventually, the WVFDA became frustrated with the lack of action taken by the Funeral Board, and reached out to the West Virginia Legislature.  Then two years after first receiving notice of the fraudulent conduct, the State Board accepted a ‘plea bargain’ agreement prepared by the funeral director’s attorney.  Per the plea bargain, the former Board president received a 6 month license suspension.  This outraged some of the State Board members, and the West Virginia Funeral Directors Association.

The Legislature responded quickly, and within a few weeks, their auditor went calling upon the State Board with his findings.  The Board’s Executive Director responded in writing, citing the advice given by their attorneys that the Board’s hands were tied until a complaint was received.  The letter also attempts to justify the plea bargain by explaining the legal costs avoided by the State Board.  But the letter only served as fodder for the auditor in lambasting the State Board for favoring one of their own over the duty to protect consumers.

In actuality, the Board and its staff did probably perceive the plea bargain as an expedient resolution.  But in doing so, the Board members failed their industry and consumers.  For the three new members that voted to approve the plea bargain, their credibility is ruined.  Sunsetting the State Board is not the appropriate answer.  As the auditor suggests, the State Board needs to be reconstituted, and with industry members with strong ethical track records.

*Reprinted from the Funeral Service Insider – September 25, 2017

**Reprinted from the Memorial Business Journal – September 25, 2017

To subscribe to the Funeral Service Insider, visit  www.funeralserviceinsider.com.

To subscribe to the Memorial Business Journal, visit http://www.nfda.org/news/nfda-publications/nfda-memorial-business-journal.

The New Owner of NPS: Liberty Banker Life

Posted in NPS/Lincoln

The Special Deputy Receiver over National Prearranged Services recently filed an application to assign a significant portion of the NPS preneed contracts to Liberty Bankers Life Insurance, and a subsidiary, Capitol Life Insurance Company.  If approved by the court, the NPS contracts will transfer on November 1st.  Preneed contracts sold in Missouri and Alabama will be assumed by Capitol Life, and the remaining states’ contracts will be assumed by Liberty Bankers.  Both companies will rely on an independent insurance company, Texas Service Life Insurance Company, to process claims.

Of the preneed contracts being transferred, Missouri is the largest block involved and Illinois is the second largest.  Missouri contracts will account for almost half of the business transferred.  Missing from the transaction are most Texas preneed contracts.  Texas contracts account for less than 1% of the transfer.  When NPS collapsed in 2008, Texas was hardest hit by the failure.  If the proposed sale to Liberty Banker Life does not include the Texas contracts, the SDR must have other plans (or offers) for the Texas contracts.

It is too early to tell how the transfer will impact the current claims process.  However, Liberty Bankers Life and Capitol Life specialize in final expense products, and therefore are familiar with the death care business.  The transaction will provide these insurance companies a marketing toehold with funeral homes.

Funeral homes should anticipate some joint announcement from the SDR and Liberty Bankers Life the second week of November.

Missouri Seller Records: 2017 Reboot?

Posted in Administration, Compliance, Master Trusts, Missouri - SB1, Recordkeeping

This time last year, the hot topic before the Missouri State Board of Embalmers and Funeral Directors was the staff’s proposed regulation to define what constitutes adequate records of a preneed seller.   The proposal was revised more than once during 2016, but it was eventually tabled by the Board before any consensus could be reached.  This blog discussed several of the industry’s concerns about the proposal in a series of posts last year (click here to view those posts).

We still believe those concerns merit an open discussion before the State Board.  Last summer, the State Board did little to facilitate any discussion with licensees.  Having since filed an administrative hearing commission complaint over the inadequacies of one seller’s records, the Board may still be reluctant.  Guidelines are needed, and the Board should be listening to licensees about defining reasonable record requirements.

Missouri’s State Board: the 2017 Sabbatical is Over

Posted in Missouri - SB1

After a 8 month sabbatical, the Missouri State Board of Embalmers and Funeral Directors will be back at work soon.   Shortly after taking office in January, Governor Eric Greitens withdrew two interim appointments to the State Board, leaving it without a quorum to take formal actions.  For the last eight months, the State Board has relied upon a committee to approve ministerial acts such as the issuance of licenses.   In the meantime, audit and discipline issues had to be tabled.

The “new” State Board has a familiar look.  All three appointments have prior experience.  Accordingly, the Board will be expected to hit the ground running. With notice requirements, we anticipate that the State Board will next meet the last week of September, or the first week of October.  The Board will have a full slate of issues for the next several meetings.

Missouri Preneed Annual Reports: Include Those Pre88 and Post88 Trusts

Posted in Exams/audits, Missouri - SB1

The Missouri Preneed Annual Report for 2017 is a little different from prior years.  Schedule H (trust funded contracts) now seeks information about Pre88 trusts and Post88 trusts.  Previously, Schedule H only referenced trusts that administered contracts sold subsequent to August 28, 2009.  This had been a source of confusion for Missouri funeral homes.  Accordingly, many have never filed a Schedule H for Pre88 trusts or Post88 trusts.  This was an issue we raised in defense of a seller called before the Missouri State Board of Embalmers and Funeral Directors last Fall.   Chapter 436 as amended gave the State Board authority to seek information about contracts sold prior to the effective date of Senate Bill No. 1, but the annual report identified trusts with contracts sold subsequent to the effective date.

As amended, Schedule H could still be confusing to funeral homes.  The addendum for listing individual contracts advises that it applies to “Pre and Post 8/29/2009”.  But the instructions correctly advise that the addendum is for listing preneed contracts sold between September 1, 2016 and August 31, 2017.    If administered correctly, Pre88 trusts and Post88 trusts should not be adding new contract sales.  If so, Schedule H’s for Pre88 Trusts and Post88 Trusts will not have a contract report.  The addendum should be marked “N/A”.   Only Part A of the Schedule need be prepared for Pre88 and Post88 trusts.

The NPS Appeals Opinion: What does it mean for Preneed Fiduciaries?

Posted in Missouri - SB1, NPS/Lincoln

In an opinion issued last week, the Eighth Circuit Court of Appeals struck down key NPS trial rulings that resulted in a $491 million jury verdict against PNC Bank (as the successor to Allegiant Bank).  The appeals opinion states that the trial court erred when it allowed the NPS receiver to argue tort based claims to a jury.  Instead, the NPS receiver should have been limited to arguing breach of trust claims to the judge.   The breach of trust claims would have substantially limited the bank’s exposure for the acts or omissions of other NPS trustees.  The opinion suggests that the most that Allegiant Bank could be held liable for was $66 million.  The judgment was remanded back to the trial court for additional trial proceedings.

In affirming two other key rulings, the opinion muddies the waters for preneed trustees.   Prior to its restatement  in 2009, Missouri’s Chapter 436 enabled the seller to use the trust agreement to define and limit the trustee’s duties.  And when the trust assets exceeded $250,000, the seller could also designate an independent fund manager and exculpate the trustee from liabilities arising from investments.  NPS exploited these Missouri law provisions to reduce the bank’s role to that of a custodian.  Allegiant Bank argued these issues as defenses, but the appeals court relied upon the restatement of trusts to hold that consumers and funeral homes are also beneficiaries of a preneed trust.  (Frankly, that holding should not come as a complete surprise to the funeral industry because the IRS came to the same conclusion in Rev. Rul. 87-127.)

When the beneficiary holding is coupled with the opinion’s discussion of the exculpation provisions of R.S.Mo. §436.031.2, preneed trustees have reason to be concerned.  The appeals court focuses on the following language from the statute:

“In no case shall control of said assets be divested from the trustee nor shall said assets be placed in any investment which would be beyond the authority of a reasonably prudent trustee to invest in.”

The opinion states that Allegiant Bank had an ongoing duty to monitor the prudence of investments, and cannot be relieved of liability unless it ensured that the fund manager was investing trust assets “within the authority of a reasonably prudent trustee”.   This is sure to be an issue regarding which PNC Bank will seek to introduce evidence.   NPS’ investment advisor was directing consumer funds to be invested in whole life insurance policies.  That was a common investment option following Rev. Rul. 87-127, and whole life insurance policies would seem to be within the authority of a reasonably prudent trustee.   Armed with 20/20 hindsight, the trial court could deem that the common control between NPS and the insurance company, and the ‘independence’ of the fund manager, required Allegiant Bank to drill deeper.  But how deep?

Preneed trustees that allow the appointment of independent fund managers will be monitoring the trial court’s handling of this issue.

Missouri’s Executive Order No. 17-03: Going on Record

Posted in Compliance, Missouri - SB1

As we had suggested in a prior post, the Missouri State Board of Embalmers is acting to facilitate the directives of Executive Order No. 17-03 before the Board’s member vacancies are addressed.  Public hearings have been scheduled for Augusts 14th and 15th at the Division of Professional Registration.  The State Board will also accept comments online, or in writing via email, US mail or fax.

To facilitate online comments, the State Board has expanded their website.  Licensees who take advantage of this online opportunity can click the ‘offending’ regulation and provide their comments.  When doing so, licensees should tailor their comments to the standard that the State Board must follow (whether the burdens of the rule outweigh its benefits or protections).  For example, we have submitted comments regarding 20 CSR 2120-2.070(9).  The first sentence of that rule reads as follows:

 The establishment license issued by the board is effective for a fixed place or establishment and for a specific name of a person or entity authorized to conduct business in Missouri and may include one (1) “doing business as” name.

In our letter to the State Board, we acknowledge the protections afforded by public by requiring licensees to register ‘doing business as’ names with the Secretary of State and the State Board.  However, the State Board has refused to articulate any protections or benefits from restricting licensees to a single DBA.  As the Missouri industry consolidates, operators that buy out a neighboring competitor will find it difficult to capitalize on that firm’s goodwill when limited to a single DBA.  In the absence of any protections or benefits, the State Board faces an easy cost/benefit analysis.  With other regulations, the cost/benefit analysis will prove more challenging.  Accordingly, licensees will want to consider both sides of the analysis.

Missouri Rule Rollback: How to Start the Process?

Posted in Compliance, Missouri - SB1, Uncategorized

Despite lacking sufficient members to take official actions, the Missouri State Board of Embalmers and Funeral Directors met last week to discuss Executive Order 17-03.  As we reported back in January (Missouri Rule Rollback), the Order represents a significant undertaking by the State Board.  Seven months later, the State Board has less than a year to comply with the Order, and no one knows when the Governor might fill the Board’s vacancies.

Rather than wait for those appointments, the State Board may want to initiate notice of the public review process.  The Order requires notice published in the Missouri Register, followed by a 60 day period for public comments.  Following the 60 day public comment period, the Board is then required to hold two public hearings to allow the comments from the public and businesses.   The Order also requires the Board to solicit comments and advice from licensees and interested parties.

With the Missouri funeral industry giving the State Board low approval ratings, the public review process gives licensees an opportunity to provide objective comments about those regulations that the consider “ineffective, unnecessary, or unduly burdensome”.

The $64 Million Dollar Question: Is the Money there?

Posted in Master Trusts, Missouri - SB1

While the Missouri State Board of Embalmers and Funeral Directors’ Complaint against the Missouri Funeral Trust alleges the program has failed to maintain adequate records, documents and oversight, funeral directors want to know whether the trust is adequately funded.   Although the State Board raised issues with some contracts reported with zero deposit balances, the Complaint does not expressly assert that the Missouri Funeral Trust has failed to deposit consumer funds, or has improperly distributed consumer funds. Nor does the Complaint include any allegations of mismanagement of trust funds.  Funeral directors are left to wonder whether the MFT has serious problems or the State Board is being ultra critical.