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.