Back in March, the NPS Special Deputy Receiver won a judgement of $355 million against PNC Bank (as successor to Allegiant Bank).   In defense of Allegiant Bank, PNC argued that Missouri’s Chapter 436 defined the trustee’s duties as owed solely to the preneed seller.  That was the intent of the Missouri Funeral Directors Association when it sponsored the 1982 legislation that was to become Chapter 436.  The MFDA wanted to establish a master trust program that could control investment functions and limit the trustee’s duties.  Watching what other state associations were doing, the MFDA went a step further by having the law define a new legal entity: the third party seller.  In contrast to the agency relationship followed by other states’ preneed programs, Missouri wanted a program where an entity other than the funeral provider could be the principal, and in control of the preneed trust.

But, the Federal court disagreed with PNC and instead interpreted Chapter 436 to find that funeral home providers and contract purchasers were also beneficiaries to the preneed trust, and thus owed fiduciary duties.  That ruling cut the legs out from under PNC Bank, and the jury quickly awarded a judgment in favor of the SDR.  In a recent pleading filed with the Federal trial court, the SDR is now requesting $179 million of prejudgment interest from PNC Bank.  The total tab sought by the SDR against the former NPS trustee is now in the neighborhood of $570 million.  So, it is perplexing to witness Missouri’s last active third party seller continue to deny the impact of the NPS decision and a new preneed statute on the duties owed by its program trustee to funeral homes and contract purchasers.

At this past week’s State Board meeting, the executive director of the Missouri Funeral Directors and Embalmers Association and the Missouri Funeral Trust spoke in opposition to Chapter 436 legislation that refers to provider funeral homes and preneed contract purchasers as beneficiaries to the preneed trust.  The executive director offered isolated provisions from the new Missouri preneed law in argument that purchasers have no rights to trust income, and therefore, no rights to trustee disclosures.   It was not clear from the executive director’s comments whether either the Association or the Missouri Funeral Trust have a position on the provider funeral homes as trust beneficiaries, and thus entitled to trustee disclosures.

Clearly, one issue that troubles the MFT is the extent that Eagle Bank (the program trustee) and its fund managers owe a duty to preneed contract purchasers for investments.  Sponsors of master preneed trust programs often limit their trustee’s investment exposure by offering investment options to the funeral home.  If the preneed purchaser is excluded from that process, can they then sue the trustee, investment advisor and funeral home provider if the account loses value?  That is what happened in Illinois.  If the program includes the preneed purchaser in the process (by contract provision consenting to the funeral home’s decision), will a court find that binding on the purchaser when the program limits the funeral home’s investment options?

By challenging legislation because it acknowledges the purchaser as a trust beneficiary, the Missouri association has become that proverbial ostrich with its head into the sand.  The NPS trial ruling has thrust Missouri preneed trustees into a dilemma whether the association will admit it or not.