The class action lawsuit brought against the NPS affiliates on Friday, June 20th reflects the despair that some funeral directors are experiencing over the situation. Although litigation to recover assets from the Cassity Empire was inevitable, this lawsuit has flaws that need to be corrected through an organized effort brought by the states’ regulators.
Funeral homes have a legal claim for damages against NPS to the extent they have serviced NPS contracts and failed to receive the compensation promised them by NPS. Consequently, I anticipated finding this provider’s associate agreement as an exhibit to the pleading. However, the filing omitted documentation that would evidence the funeral home’s rights and obligations with regard to the performed contracts and the contracts that remain to be performed. As evidenced by the June 9th Funeral Service Insider, NPS played by fast and loose rules when it came to their relationships with provider funeral homes. So, what are funeral homes entitled to?
The lawsuit also fails to include the consumer as a member of the plaintiff class. With regard to executory preneed contracts, the consumer has superior rights to the funeral home. Ignoring the rollover contracts, the funeral home has an expectation of performing the preneed contract when the death occurs. However, the consumer could always move to another state, or cancel the contract. Until the funeral is provided, it is the consumer who has the greater claim of damages from NPS. His/her NPS contract has no cancellation value or portability.
The lawsuit is also troubling in the sense it presumes that whole life insurance policies were appropriate trust investments under Missouri’s preneed law. Chapter 436 is a bit ambiguous about insurance funded contracts, but with regard to trust funding, the law permits the preneed seller to retain 20% of the contract’s purchase price, and to trust the remaining 80%. Unless the purchaser makes the contract irrevocable to qualify for public assistance, the contract can be cancelled and the seller must refund the amount that went into trust. So, if the seller trusts only 80%, how can the trustee purchase a whole life policy and have the liquidity required for Chapter 436 compliance?
This funeral home points an accusing finger at the fiduciaries, but the pleading reflects the funeral home’s acceptance of the trust holding whole life insurance. A question regulators might ask is whether the funeral home received any compensation for the insurance purchased by the trust.
Regulators have valid excuses for distancing themselves from this lawsuit, but consumers need an independent authority pursuing their (and funeral directors’) claims against NPS. If regulators do not recover sufficient assets, funeral homes will fail and consumers will lose their funeral promises.