Kansas Death Care and Preneed Lawyer & Attorney : Stalter Legal Services Law Firm : Funeral Law, Elder Law : Kansas City

Funeral directors will attempt to leverage the Funeral Service Insider’s report about the NPS contributions to state politicians, but they should do so with caution.

The story does not paint the entire picture of NPS’ efforts to influence the politics that controlled Missouri’s preneed industry. The amount attributed to the Missouri efforts ($168,000) seems low. Granted it does not reflect contributions made during the past two years, or those made prior to 1999, but the seven years in question cover the period when NPS’ sales seemed to have leaped (within Missouri and to other states). 

If NPS providers are going to point an accusing finger at Jay Nixon, they need to consider two issues: their need for Nixon’s help and cooperation, and the complicity of some funeral directors in the NPS impropriety. 

NPS made political contributions for a number of reasons, including the opportunity to have NPS providers appointed to the Missouri State Board of Embalmers and Funeral Directors. The funeral homes demanding action from the regulators may, for the most part, be innocent.  But when a group is found to have one or more pots calling the kettle black, the credibility of the group as a whole is undermined.

If it is not apparent, there is some finger pointing being done within the regulators’ closed circle. A potential issue in the rift among the regulators maybe the political dispute between Missouri Governor Matt Blunt and Missouri Attorney General Jay Nixon that prompted the AG’s Office to pull its staff attorneys from their day to day representation of the various state boards and agencies. This forced the Missouri State Board of Embalmers and Funeral Directors to look to the legal staff of the Division of Professional Registration, a staff that was already stretched. In reality, the NPS situation existed long before the AG pulled its attorneys, and the posturing has already begun for that issue.  

The NPS meltdown has regulators scrambling for their respective excuses. Some of those excuses will appropriately lay the blame back on the death care industry. However, NPS was an equal opportunist when it came to exploiting politicians and funeral directors. Eventually many individuals may be called upon to provide an explanation, but funeral directors and regulators would be better served channeling their current energies towards the recovery of consumers’ funds and the formulation of a program to administer those funds.  

In five months, consumers will be voting.  Will they be more receptive to excuses or explanations about the efforts already implemented to provide their funerals?

Everyone has an excuse. Write them down and put them away for another day.  

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Everyone complains about continuing education, but occasionally the concept is reinforced when a timely program provides needed insight. Such should be the case when the Missouri Funeral Directors and Embalmers Association sponsors a class on the tax consequences of servicing an NPS contract. 

Funeral directors need to understand that they do not necessarily incur a tax loss when they honor an NPS that pays less than their at-need prices. Incurring an IRS audit by improperly reporting NPS revenues would be salt to those wounds.

The MFDEA convention starts June 1^st, with a slate of classes scheduled for Monday, June 2^nd.   Continuing education is not required for Missouri licensees, but it should be. Regardless, NPS providers from Missouri have ample reason to consider attending the convention. Hearing the Missouri Attorney General’s Office address the NPS situation may be worth the price of admission.

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The Cassitys have a rearguard strategy after all.

The Texas Department of Insurance paid a price for gaining control of NPS and its sister insurance companies: A Rule 11 Agreement.   Texas has agreed to not bring litigation against the companies, or various individuals and firms related to NPS.  A very steep price, but one Texas may have felt it had to pay in order to gain control of the NPS/Lincoln records. 

The $640 million question is who will pursue the Cassitys if the NPS cupboard turns out to be bare? 

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As news of the NPS meltdown began to leak last month, several proposals to reform Missouri's preneed law were hastily drafted.  Not knowing the extent of NPS' problems, some reform advocates felt the need to strike while the iron was hot. 

Even as the legislative session ended on May 16th, it was not clear whether any reform would be enacted.  However, when the dust settled in Jefferson City, the only preneed reform enacted will prove the most prudent.

By virtue of an amendment made to Senate Bill 788 on the Senate Floor, the "Joint Committee on Preneed Funeral Contracts" was given birth.  The committee will be formed with seven members from each of the House and the Senate. 

The Joint Committee's tasks are to:

(1) Make a comprehensive study and analysis of the consumer and economic impact on the preneed funeral contract industry in the state of Missouri;

(2) Determine from its study and analysis the need for changes in statutory law; and

(3) Make any other recommendation to the general assembly relating to its findings.

By the time the Committee members are appointed, and hearings are scheduled in September, a great deal more will be known about NPS' business practices.  However, the hearings are bound to put Missouri's entire preneed industry under the microscope.  The death care industry has the summer to prepare.

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One positive aspect of Texas appointing a “Rehabilitator” for NPS and its sister insurance companies is the emergence of a single authority over the NPS empire, a godfather so to speak. Rather, a Godmother.

Funeral directors have been chasing legislators, regulators, government officials, and judges for help. This is quite understandable when your entire preneed program was with NPS. However, the Agreed Order Appointing Rehabilitator and Permanent Injunction (“Agreed Order”) will stay all lawsuits like that brought by the Broussard’s Mortuary, a long established Texas company. 

The Agreed Order could also bring much needed focus for groups like the “Consumers Funeral Assurance”, a Missouri outfit that is soliciting support from former NPS providers. (Have you spoken with Josh about the similarities in your names? )

One valid grievance funeral directors have with the regulators’ current status quo is the payment of claims based on the contract’s sales price.   For NPS contracts sold within the past few years, the contract face does not represent much of a hardship. It will be quite a different story for the twelve year-old contract.   Now we can appreciate why NPS was offering those Triad casket coupons.  

Rather than pursue geese like the “formation of a quasi-state agency that will assist with the payment of claims”, funeral homes (or the entities that form to represent them) should channel their energies and resources towards the inclusion of their issues in the plan of rehabilitation required by Texas law.   (See ¶2.11 of the Agreed Order.) 

While funeral directors may be tempted to seek an appointment with Ms. Garrett, they would be better served by briefing the issues for her consideration. Funeral directors should be objective and honest in how they present their issues. Ms. Garrett will be taking possession of all NPS records, and ostensibly, will discover which funeral homes received loans or special commission payments. The emperor has no clothes.  

It would also be advisable to tone down the rhetoric. Regulators are probably beginning to appreciate their responsibilities for the NPS failure, but are the funeral directors? 

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The dominoes are beginning to fall.  The Texas Department of Insurance has disclosed that Lincoln Memorial and its sister Memorial Service Life have been put into receivership.  The Department's website provides a copy of the order appointing a Donna J. Garrett as the companies' rehabilitator, and a Q&A for consumers. 

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David L. Bingham, Jr. (Junior) is getting his 15 minutes of fame. 

The Associated Press ran Junior's story about  the wrong David L. Bingham, Sr. having been buried next to his mother.   The cemetery has offered Junior some options for correcting the misburial, but he has rejected them all.   A demand for compensation is in the winds.

A more detailed story about the situation was reported by the The Enquirer, and it would seem that Junior may be exploiting the situation.  

Misburials are rare, but they happen.  In this situation, the stated facts suggest that someone contacted the cemetery for a burial of a David L. Bingham, Sr. and a records check indicated David L. Bingham Sr. already owned a lot.  How many David L. Bingham Sr.s can there be?  The cemetery staff would have made some type of inquiry, and the individual arranging the burial must have made an assumption, and the late Mr. Bingham became acquainted with the late Mrs. Bingham, so to speak.  

Junior knows there was a mistake because Dad is buried in Kentucky.   Sounds like Junior's parents were divorced.  Which raises the question: Was the space in dispute purchased for Junior or for Dad?   

The cemetery may be asking the same question, but it sounds as though a change in management and ownership has occurred since the Binghams purchased their lots.  The new owners may not be able to confirm this fact.

Generally, cemeteries retain the authority to correct misburials through their rules and regulations .  State laws typically recognize this authority in statutes.  Ohio law regarding disinterments provides an exception to allow burial corrections.  But Junior will have no part of this, claiming that "I don't want to be buried in a used grave!"    Junior is even suffering from anxiety attacks.   Sounds like Junior is being coached by an attorney.  (Don't you just love lawyers.)

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Yesterday, the St. Louis Post-Dispatch ran an article that examined the history of NPS, and raised some of the questions that need to be explored in depth in the months to come.   The system failed in several states, for both consumers and funeral homes.   While most funeral homes will try to make good on the NPS promises to consumers, regulators must share in the responsibilities for what went wrong and what has to be done.

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The Missouri preneed industry faces a long and stormy summer. 

The Missouri legislature seems to be listening to regulators' requests for much needed authorities for examinations, audits and rulemaking.  A draft bill providing emergency powers to the Division of Professional Registration has emerged as legislation that may be signed into law before the current session ends next week.  In contrast to most bills enacted into law, this one is rumored to have an immediate effective date.

If the bill is signed into law, the Missouri State Board of Embalmers and Funeral Directors will begin to study methods for implementing the preneed inspection powers to determine whether the state's preneed problems extend beyond the NPS failure.  Though meant to demonstrate the industry's overall compliance with Chapter 436, recent testimony at legislative hearings may have undermined regulators' confidence in the industry's past efforts to comply with current law.

One approach the State Board will consider is a comprehensive desk top examination of each seller's fundamental compliance with Chapter 436.   Approximately 12 years ago, the State Board contemplated a broad based review process that  would have sought basic information about the three methods of funding: trust, insurance and joint accounts.   However, the initiative could not be pursued because the State Board lacked the authority to require compliance by licensees. 

I could not attend recent  a hearing where industry members testified before legislators to provide assurances that most funeral directors do comply with Chapter 436.  If the description provided to me about the testimony of one well intended funeral director was accurate,  funeral homes need to take a refresher on the requirements of Chapter 436.  I have heard similar misstatements by funeral directors at recent State Board meetings.

I anticipate that The Missouri Funeral Directors and Embalmers Association is already working on Chapter 436 compliance courses to provide its members.  Association members would be well advised to take such a course before assuming their funeral home is in compliance.

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On Wednesday, April 30^th, the Missouri Department of Insurance fired off the first salvo in the legal proceedings to recover funds from Lincoln Memorial Life Insurance Company. In an effort to prepare those affected by the NPS meltdown, the Missouri State Board of Embalmers and Funeral Directors and the Division of Professional Registration have issued press releases that explain critical issues related to this situation. The tenor of these press releases is substantially different from those previously released by other states’ regulators. Consumers and funeral directors need to review these releases carefully.   

If it hasn’t been apparent to funeral directors before now, Missouri’s filings against Lincoln Memorial Life reflect that the NPS trusts are full of term insurance policies. Some reports indicate that the policies may be lapsing soon. While Missouri Department of Insurance has filed its actions against Lincoln Memorial Life, the eventual target will be the NPS/Lincoln corporate officers and directors. Because regulators must pursue their claims through the authorities granted by the statutes governing insurance and preneed, funeral homes need to consider banding together in an action that focuses on the authorities granted to the replacement management team installed by the Texas regulators. 

The Missouri regulators and their legal staffs have been overwhelmed by the situation.   These offices were understaffed to begin with, and the magnitude of the investigation, legal proceedings and inquiries has stretched their resources to the limits. This all may make for good campaign rhetoric in the upcoming fall elections, but the industry needs to take actions to help recover improperly diverted funds. 

The rumors of law firms offering to initiate class action lawsuits have already begun to circulate. But, most funeral directors probably appreciate that building a coalition to preserve the NPS assets and working towards an equitable division of the proceeds would better serve their interests.   To be fair, consumers need an explanation about the third party preneed transaction and their exposure for the NPS failure. 

The majority of preneed contracts are between the funeral home/cemetery and the purchaser, wherein the funeral home/cemetery is the primary obligor. The essence of the contract is two promises: the purchaser to pay a specific amount of money and the funeral home/cemetery to provide certain described services and goods when the purchaser (beneficiary) dies.   

NPS is (was) a third party preneed seller. Funeral homes and cemeteries use third party sellers for a handful of valid purposes. Often, smaller death care companies may not have the volume of preneed sales to justify the expense of contracts, administration and compliance and so they contract with third party preneed sellers. Some states require the death care company to be the obligor of the preneed contract, but many do not. In states where law requires the death care company to be the obligor, the third party seller acts in an agency capacity to the funeral home and cemetery. It that situation, the death care company has an obligation to honor the contract regardless of most circumstances (like the failure of the trust). 

However, states such as Missouri and Texas, allow the third party seller to be the obligor of the preneed contract. In these types of preneed transactions, there are four sets of promises: the purchaser to pay money to the third party seller, the third party seller to cause the funeral home to provide a funeral by paying it money, the funeral home to provide the funeral, and the third party seller to pay money to the funeral home. However, the terms of the payment between the third party seller and the funeral home are not generally disclosed in the preneed contract, but rather in a separate agreement between the third party seller and the funeral home/cemetery (called an associate agreement or provider agreement). 

NPS used a multitude of different preneed contract forms and associate agreements (most of which were infamous for their ambiguity or brevity). NPS relied upon these ambiguities to transfer preneed contracts from one funeral home to another funeral home if the circumstances benefited NPS. Consequently, the agreements were intended to be difficult to enforce, which cuts two ways.

Regulators did not seem to appreciate this fact when early press releases were issued to calm consumers. Those press releases suggested that funeral homes would have to honor their NPS contract “pursuant to their terms”.   While funeral directors cannot afford to walk away from their families, regulators need to follow the lead taken by Missouri’s State Board of Embalmers and Funeral Directors by being more forthright with consumers.   If the NPS/Lincoln proceedings take years to resolve (instead of months), the parties will need an understanding of their respective rights and obligations in reaching fair and equitable settlements.

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