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

Three years ago we asked that question with regard to the power struggle occurring between the Missouri State Board of Embalmers and Funeral Directors and the Missouri Division of Professional Registration staff. That post was influenced by our experiences with preneed regulators from other states, who range from elected politicians to the revolving door bureaucrat. I would always prefer the experience and stability of a Dennis Britson or a Mack Smith, but they honed their skills over decades, and Missouri is under a bit of pressure to get reform rolling. With the Missouri Legislature having vested preneed supervision with the industry, we saw hope that Missouri could establish a unique structure where the experience of the industry would mesh with a staff with long term commitments. But silly me; the regulations drafted in response to a December vote on insurance assignments provide the answer to “Who is the Boss?” It is the Governor.

I must confess that my mind drifts at times when I attend the State Board meetings. Okay, I also check emails from time to time when the Executive Director gives her reports. But, the regulation proposals leave me wondering whether I was in the wrong room last December. But, Mr. Otto did whisper to me from time to time during the meeting I thought was the State Board’s. Maybe we were at a MFDEA meeting? Then again, I recall a unanimous vote that defined the insurance assignment as a preneed contract that was to be exempt from the $36 fee.

My warning from the “Who is the Boss” post in 2010 was this:

Death care operators are often frustrated when regulators take actions that demonstrate a lack of understanding of the business (or worse yet, a misunderstanding of applicable laws). The risk to both the death care operator and consumer is when the elected preneed regulator allows politics to influence the reform process. Elected regulators may pose the greatest challenge to developing effective preneed supervision, and then maintaining that system.

It is obvious the Governor doesn’t read this blog. Since 2010, an elected politician has made insurance assignments our preneed reform priority. I get it. The excess insurance proceeds could help offset the benefits paid to nursing homes, and Chapter 208 requires a Chapter 436 preneed contract. The State doesn’t want to revisit Chapter 436. It would be easier to manipulate the language of SB1 to get the desired result. (It’s not like the industry doesn’t do it too.) It took the State Board 18 months to offer a compromise, and one that was a win-win for the state and the industry. But, you are overplaying this hand by demanding the $36 per contract fee.

For the past two years, the industry and Board members have asked what the Division really needs in terms of fees to conduct exams. The answers have been evasive at best, but I could defend that response because the examination procedures are work in progress. But, your regulation proposals indicate that “The costs for the Board to administer preneed contracts is the same per contract, regardless of the value of the preneed contract.” If that is the case, then what is the cost per contract to perform a preneed examination? I find the Division’s budget for the State Board confusing, but the numbers attached to the agenda are significant. Is the Division receiving more that it needs, and if so, where do those funds go?

Up to this point, the examination procedures have focused on recordkeeping and confirming that consumer funds were deposited to banks and insurance companies. At some later date those procedures will need to look at how those funds are administered and paid out to funeral homes. But, until then, why is the $36 fee required on a transaction where the funeral director does not receive funds until after a death has occurred?

Three years ago I defended the slow pace of the Division, and advised the industry that reform required a shared responsibility between the Division and the State Board.  Accordingly, please respect the Legislature and let the State Board perform its role for reform under SB1.
 

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On January 14th, Missouri Governor Jay Nixon will be sworn in for his second term, and we are wondering whether the Governor’s plans for 2015 are influencing the direction of Missouri’s preneed reform. With commentary such as that published by the St. Louis Post Dispatch, the Governor may have his eyes on a 2015 campaign for national office. At a minimum, Governor Nixon could be targeting an old rival’s U.S. Senate seat. Either way, the Governor faces a nagging situation with NPS, and may feel compelled to accelerate preneed reform and deflect the criticism that has persisted for almost five years.

When National Prearranged Services collapsed in 2008, NPS funeral providers were especially critical of how then Attorney General Nixon settled the 1991 NPS lawsuit. The Attorney General’s office responded that they did the best possible with the weak enforcement powers provided by Chapter 436. Missouri’s Republican administration countered with a review committee formed for the purpose of finding industry consensus for preneed reform. But, the industry struggled to agree on key issues, and the State’s regulators took the lead in drafting Senate Bill. No. 1. In 2009, a newly elected Governor Nixon inherited the NPS fallout and a prior administration’s effort at preneed reform. Now four years later, the NPS fallout has somewhat abated (but not resolved), and there isn’t much to show in terms of preneed reform.

In contrast to the mortgage crisis or the state budget crisis, the NPS situation will not benefit from the recoveries of the nation’s economy or the financial markets. The Cassitys’ emptied the cupboards, and funeral homes are dependent upon the fixed recoveries negotiated with the state insurance guaranty fund. Most NPS providers are finding ways to cope, but one industry group persistently reminds the Governor and legislators of their discontent. The Governor would like to counter their criticism with evidence that preneed has been made safer under his watch, but it can take years to implement effective reporting and examination procedures.

As we noted in July 2011, a sudden increase in the number of financial examinations suggested that the Division was being pressured to accelerate the process. Shortly thereafter, the Division staff also began to press the State Board to define the insurance assignment as a preneed contract. The State Board and the Division staff disagreed on the insurance assignment issue, and frustration began to develop as the issue was pressed in subsequent meetings. That frustration culminated with a December 12th unanimous vote by the Board members to define insurance beneficiary designations as a preneed contract, but a preneed contract that would be exempt from the $36 preneed fee. Division staff warned that the distinction may not be legal. Within hours of the vote, the Governor’s office announced a Board appointment to replace Todd Mahn, the Chairman who had called for the vote.

The Governor’s website for Missouri’s Boards and Commissions states

"I am always looking for qualified, energetic applicants to serve on Missouri's 200-plus boards and commissions. Please spread the word. I would greatly appreciate it if you would encourage your colleagues and friends to review the vacancies and complete an application."

While this author has disagreed with some of the positions taken by Mr. Mahn, I do not question his commitment to the industry, or to the State Board. Nor did the former Chairman lack for enthusiasm and energy while serving the Board. But, rather than replace a Board member with known health issues that was serving on an expired term, the Governor replaced the younger Chairman.

It may not have been the Governor’s intent, but the appointment could be taken as message to State Board members to ‘get with the program’. But the Governor, and the Division, risk losing the confidence of both the Board and the industry. Someone has lost sight of the first issue discussed at the 2008 legislative meetings: who should have jurisdiction over preneed. Several state agencies attended that meeting, and none expressed any interest in assuming jurisdiction over the preneed transaction. As explained in a 2009 post, financial and insurance regulators often struggle to provide effective preneed oversight because they tend to focus on the ‘backend’ of the transaction (that part of the transaction they are most familiar). The front end of the transaction can take many different forms, which can push the transaction outside the normal scope of the agency’s jurisdiction. (For example, the Nebraska Insurance Department has jurisdiction over preneed sales, which includes trust funding.) When State Board members ‘stepped up’ in 2009 to retain jurisdiction (and demonstrate that the industry could provide meaningful self regulation), a collective sigh could be heard from the Missouri Division of Finance and the Missouri Department of Insurance. The Missouri legislature signed off on State Board jurisdiction, and in doing so made a trade off: reform would rely upon the collective experiences and training of six State Board members instead of an appointed department official. Governance by a board will never be the most efficient or expedient path to action.

In SB1, the State Board was given the task of protecting consumers against another NPS by developing procedures for preneed reporting and auditing. However, the Board is dependent upon the Division of Professional Registration for staffing, legal counsel, funding and reporting administration. Together, the Board and Division crafted a mission statement for the financial examinations that was to be the cornerstone of Missouri preneed reform. From this observer’s perspective, the State Board members never understood how the insurance assignment fit in to that mission statement. Explanations given to the State Board were unpersuasive, leaving an industry to wonder whether the issue was fee driven.

It may have taken the State Board a year to reach an agreement on the insurance assignment issue, but we believe the Chairman made the right call. This issue had a greater importance to the Division than it did the State Board, and there is speculation that the $36 fee, Chapter 208 and the state budget played a factor. Regardless, a resolution was needed so that the Board and the staff could turn to more substantive reform issues, including whether SB1 provides sufficient audit powers and protections. If the Division can look no further than the funeral home’s records, would SB1 have even stopped NPS?
 

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In what may prove to be a lengthy legal proceeding, Missouri Attorney General Jay Nixon filed suit against Forever Network, Inc., an affiliate of National Prearranged Services (NPS).  While the suit may duplicate the injunctions effected by the Agreed Order obtained by the Texas Department of Insurance, consumers should take comfort by the fact Mr. Nixon has begun taking action.  

While it may be days before a copy of the petition can be obtained for review, I anticipate the pleading may share some of the same assertions and requests made by Texas.  While this duplication may be confusing to funeral directors, the difficulty regulators face in bringing proceedings against NPS is that each regulator must establish the requisite authority for the remedies sought.   For Jay Nixon and the Missouri State Board of Embalmers and Funeral Directors, Chapter 436 is full of ambiguities, making their case against NPS challenging (but not impossible). 

The Missouri regulators have a stated goal of ensuring that consumers receive the services they have paid for.  While Chapter 436 has its many faults, regulators should keep in mind Section 436.007.2, which provides:

If a preneed contract does not comply with the provisions of sections 436.005 to 436.071, all payments made under such contract shall be recoverable by the purchaser, his heirs, or legal representative, from the contract seller or other payee thereof, together with interest at the rate of ten percent per annum and all reasonable costs of collection, including attorneys' fees.

NPS aggressively marketed preneed contracts on an installment basis that incorporated vague finance charges and “premature death discount fees”.  These charges often drove the price of the preneed contract up by thousands of dollars.  Justice would taste sweet if the Cassitys' had to give it all back.   

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It is not a good sign when our regulators communicate by letter.  Friday's Post Dispatch story underscores the friction that exists among some of the regulatory agencies caught in the NPS fiasco. 

In one aspect, the letter is intended to demonstrate that the Missouri Attorney General's Office is dependent upon the State Board of Embalmers and Funeral Directors and the Missouri Department of Insurance to refer matters for investigation.   However, the letter also demonstrates the defensive posture being taken by the regulators as they prepare for the worst.

The article also underscores the inconsistent information being provided by regulators.  While the Post Dispatch indicates that NPS has a billion dollars of outstanding preneed contracts, regulators have not been willing to confirm the preneed liability or the amount of assets under their control.

With this Fall's elections, the posturing is understandable.   But, let's hope that the Missouri Attorney General has initiated discussions with the US Attorneys Office about the pursuit of the Cassitys' "suspect business practices".

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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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