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

Missouri Preneed Exam Procedures: Industry Expertise

Posted in Exams/audits, Missouri - SB1, Uncategorized

Our first recommendation to the Missouri State Board of Embalmers and Funeral Directors is that they assume, and maintain, control over the preneed examination procedures.    The exam procedures implemented two years ago were never submitted to the Board for review and approval.  Accordingly, the examination procedures handbook should remind the staff that any change made to the procedures must be approved by the Board.  (From Page 3 of our Handbook comments, see Comment [A1])

Through Paragraph 6 of the handbook, the staff gave themselves independent authority to interpret Chapter 436 regarding the techniques that could be used to request, and confirm, information received from sellers.  Rather, we recommend that the State Board require the permissible techniques be set out in the handbook.  (See Comment [A2]).

But, the most important issue we want to stress concerns the State Board’s interpretation of Section 436.425.  While it is important to confirm that seller contracts are complying with the law, the staff has misapplied Section 436.425 over the course of the past two years.   We believe these mistakes could have been avoided if the Board’s experience had been sought by the staff before drafting the handbook.  If the Board were to have questions about contract requirements, we trust they would seek industry input before finalizing the examination procedures.  (See Comment [A3])

Dialing It Back to Zero: Missouri Reboots it’s Exam Process

Posted in Exams/audits, Missouri - SB1

With an action that caught some by surprise, the Missouri State Board of Embalmers and Funeral Directors voted to suspend future preneed examinations and accept recommendations on a new process.  We have made several posts on the faults of the Missouri examination process, and now commend the Board on taking a bold action.  The Missouri Legislature passed Senate Bill No. 1 to provide the State Board exam and enforcement powers to avoid another National Prearranged Services debacle.  NPS operated years on the argument that consumer funds were not required to be deposited to trust until a preneed contract was paid in full.  Then when forced to fund its trusts, NPS siphoned out consumer funds through insurance loans and policy surrenders.  But, ten years after NPS’ collapse, the Board’s staff had not yet developed procedures for tracking consumer funds.  With our next posts, we will explain our exam recommendations in detail.

A Call for Comments: Missouri’s Preneed Exam Handbook

Posted in Exams/audits, Missouri - SB1

To begin reform of its preneed exam process, the Missouri State Board of Embalmers and Funeral Directors is seeking input from the industry by this Friday, June 8th.  Specifically, the State Board is requesting comments to the Exam Procedures Handbook prepared by its staff.   We have made edits to that handbook, and will provide more detailed explanations in subsequent posts to our blog.  Our first comment would be to address the staff’s error in implementing their handbook without the Board’s approval.  It is incumbent to rely upon the Board’s preneed experiences in establishing the examination procedures.  The exam procedures will also need to be adapted from time to time, but all such revisions should be approved by the Board before implemented.

Missouri’s Adequate Preneed Records: Performance and Cancellation Records

Posted in Exams/audits, Missouri - SB1, Recordkeeping

When the State Board approved a new “adequate seller records” rule on April 25th, there wasn’t much discussion of the documents or reports to be maintained for performed and canceled preneed contracts.  In a sense, the Board may not need to expand beyond the FTC’s statement of goods and services requirement.  If a funeral home services a preneed contract and completes the statement of goods and services without reflecting payment, the statement could be evidence that the consumer’s preneed funds were never deposited to trust or with the insurance company.  But finding such fraud through an examination of a sampling of performed contracts would be similar to searching for a needle in a haystack.  If the Board had reason to suspect a funeral home has not been depositing funds, the examiner would need to review all serviced records for a pattern of ‘unfunded’ services.

In seeking disbursement records from banks and insurance companies, and selecting a sampling of serviced contracts, the Board staff’s agenda may have been to confirm whether funeral homes were honoring their preneed contracts.  Funeral directors have good grounds for challenging the staff.  First, there is nothing in SB1 to suggest this was a priority for the Legislature.  Second, performance records are not sufficient to explain why or when families decide to change the funeral arrangements.  When discrepancies are found between the preneed contract and the statement of goods and services, someone will be required to provide an explanation.  Pursuing such issues would be time consuming, and an inefficient use of the consumer’s $25 contract fee.

Missouri’s Adequate Preneed Records: Receipt and Transmittal Records

Posted in Exams/audits, Missouri - SB1

The Missouri funeral industry has haggled with the State Board for two years over preneed record requirements.  But on April 25th, the State Board scrapped the staff’s adequate record proposal, and instead, adopted a brief definition of ‘seller records’.   The State Board’s approach will afford funeral homes more flexibility in documenting the receipt of consumer funds, and the transmittal of those funds to the preneed funding agent.  To outline what could be required of funeral homes, the State Board has scheduled a two day June meeting.  The Board is seeking comments on the scope of preneed exams and the current exam procedure handbook.   If the Board is serious about providing consumer protection, the June meeting will need to include a discussion of periodic receipt and transmittal records.   While the State Board is likely to endorse a review that uses samplings, examiners will still need some form of a receipt and transmittal record that will enable them to follow consumer funds.    The following hyperlink can be used to download an example of a deposit/transmittal record that can be used by funeral homes.

Missouri Preneed Fees: Making Guaranteed Contracts Affordable to the Funeral Home

Posted in Price Protection, Uncategorized

It only took 15 months, but the Missouri State Board finally approved a rule to clarify what fees a preneed seller may charge when offering a guaranteed price contract to consumers.   Low investment returns from insurance and trusts forced many funeral homes to stop offering guaranteed price contracts to consumers.  Funeral homes’ cost increases were outpacing what they would receive on a preneed contract.  Consequently, funeral homes were limiting consumers to non-guaranteed plans or to single premium insurance contracts.  We first sought to have the Missouri State Board clarify by rule when a preneed seller could charge a fee to price protect a funeral, or to charge a fee when allowing the consumer to pay for a preneed contract by installments.  A draft rule was approved by representatives from the State Board, but the Board lost its quorum before the rule could be approved.   Finally, on April 25th, the State Board approved 20 CSR 2120-3.530, and now Missouri preneed sellers may include such fees without fear of a challenge from the State Board.

Missouri State Board: New Leniency for Annual Reports

Posted in Missouri - SB1

Another welcomed change made by the State Board on April 25th was to approve an extension on the filing of annual reports.   Missouri has one of the shortest periods (60 days) for filing a preneed annual report.   Neighboring states not only granted more time (Illinois 75 days, Iowa 105 days and Nebraska 150 days), they also afforded sellers extensions for cause.   Missouri’s sellers were further frustrated by the staff position that annual reports had to be received so as to give the staff sufficient time to review the report prior to the deadline.  But, now, the Board has approved a rule revision that would afford sellers an extension when they need extra time to file the annual report.  That should cut down on the many automatic suspensions that occur each year.

Missouri State Funeral Board: Unwinding Two Staff Overreaches

Posted in Missouri - SB1, Uncategorized

At its April 25th meeting, the Missouri State Board unwound two controversial staff proposals: mandatory consumer disclosures for preneed contracts and the formation of an insurance funded contract.  With 20 CSR 2120-3.205 , the Board staff sought to require Missouri preneed sellers to provide consumers with a two page list of disclosures.  Those disclosures proved confusing because they applied to all forms of preneed contracts, whereas funeral homes typically use a single form of contract funding.  Many funeral homes also use nonguaranteed preneed contracts which also rendered many of the disclosures inapplicable.

With 20 CSR 2120-3.210 , the Board staff also sought to regulate spend down insurance assignments under Chapter 436.  In prior blog posts we have discussed how the State Board can address the staff’s consumer protection concerns with authorities granted under Chapter 333.  However, the Missouri Legislature’s intent with Senate Bill No. 1 was to regulate preneed transactions where consumer funds were handled by funeral homes prior to a death.

With the Board’s April 25th vote, both regulation proposals were rescinded immediately.   In that neither proposal had been formally promulgated, the Board need not promulgate a new rule to terminate either proposal’s enforcement.

Of the two proposals, the one with more far reaching implications is the formation of an insurance funded contract.  Threatened with discipline, many funeral homes began collecting the $25 state fee on each insurance assignment made for spend down purposes.  The Board staff also created a special annual report section for the reporting of these assignments.   The Board will need to give notice to Missouri sellers regarding the annual report and the handling of the $25 state fee.  If the state fee was collected from consumers, funeral homes will need to refund the fee.

Missouri’s Funeral Board: Taking Back the Reins

Posted in Exams/audits, Missouri - SB1

The April 25th meeting of the Missouri State Board of Embalmers and Funeral Directors marked an important transition where industry members assumed control over the protection of consumers’ preneed funds.   After the first round of financial examinations, the Board’s procedures for the second round were defined by the Board’s staff, and never submitted to the Board for discussion or approval.  The Board staff moved forward on its own financial examination procedure handbook when the Board lost its quorum in January 2017.  The staff’s exam procedures bogged down on the technical compliance of preneed contracts with Section 436.425.  When the Board’s vacant seats were eventually filled in late 2017, the Board signaled its desire to change the direction of the financial examination process.  However, that signal was ignored by the staff, and financial examinations continued to emphasize compliance with Section 436.425.  Through letters to the Board’s financial examination committee, this author sought to demonstrate how Section 436.425 was being misinterpreted and misapplied.   Through open records requests, we learned that the staff was not providing those communications to the State Board members.  So, we began to communicate the exam issues directly to the State Board members.

With the April 25th agenda, the State Board chairman Gary Fraker opened the floor to our proposal to reform the examination process.  We are very appreciative to Mr. Fraker for the opportunity to discuss the problems with the current examination process.  And, the Board did more than just listen.   Members directed probing questions to the Board’s examination staff and its executive director.   When the agenda progressed into the discussion of preneed rule proposals, the Board’s industry members sought input from the public, but limited comments and recommendations that were protectionist in nature.   The Board also gave deference to their peers with more preneed experience, and relied heavily upon Scott Meierhoffer for direction.   As a result, the Board moved quickly through preneed regulations that had been pending for years.  Several proposed regulations were scraped completely.  Other proposals were modified, and a few were ‘re-adopted’ without revisions.

In our next blog posts we will look at the Board’s actions in more detail.  Some of those actions will have an immediate impact upon the Missouri funeral industry.  The staff had incorporated rule proposals into their examination procedures before they had been officially promulgated.  By rescinding such a rule, the Board can reverse the issue immediately, and correct a wrong committed by the staff when enforcing a rule before it became law.

Missouri Preneed Examinations: The Doctrine of Semi-Absurd Statutory Construction

Posted in Compliance, Exams/audits, Missouri - SB1

Missouri funeral homes are frustrated with the State Board of Embalmers and Funeral Directors.  The second round of preneed examinations has begun, and the Board’s staff is citing sellers for “new” contract form violations on “old” contracts.  Examiners are reviewing all outstanding contracts, including those covered in the seller’s first examination, and now citing the seller for violations of Section 436.425.    The rub for many of funeral directors involves insurance beneficiary designations accepted in a spend down situation.  The State Board approved a rule a few years ago (20 CSR 2120-3.210) that defined insurance funded preneed contracts to include spend down transactions.  That rule was opposed by the Board until the then current Board chairman was removed by former Governor Nixon.  The remaining Board members got the ‘message’, and the rule was eventually approved.  But, the rule was never promulgated pursuant the Chapter 536.  But never the less, the Board staff has cited numerous funeral homes with violation of Section 436.425.  In doing so, the Board is violating one of the basic doctrines of statutory construction:  do not apply a strict interpretation of a law that produces an absurd result.

Section 436.435 begins with the statement that “All preneed contracts ……shall clearly and conspicuously” and then incorporates 16 subparagraphs.  While it is rumored that the State Board is require each preneed contract to comply with all 16 subparagraphs.  That would be a clear violation of the rule against absurd results because the Legislature did not intend for trust funded contracts to include insurance disclosures, or insurance funded contracts to make trust disclosures.  Such a requirement would only serve to confuse consumers.

But, the Board’s position that spend down contracts must include insurance disclosures meant for insurance funded preneed contracts still produces an absurd result.  The spend down transaction involves insurance policies purchased by the consumer independent of the funeral home.   Accordingly, the funeral director will not know the policy’s cash surrender values, or the owner’s rights under the policy.  As reflected in the State Board’s own recommendations to the Legislature, Senate Bill No. 1 was intended to regulate preneed contracts issued in conjunction with the purchase of a life insurance policy.