At its April meeting, the Missouri State Board of Embalmers and Funeral Directors discussed the formation of a “Phase 3 Committee” that would provide input for the revision of the Board financial examination handbook. The Board staff is about half way through the second round of preneed examinations (“Phase 2”), and the Board wants to adopt new examination guidelines that can be implemented when Phase 2 Exams are completed. However, there is an immediate need for a Phase 2.5 Committee. Exception comments from the Board’s preneed examiners suggest there is still confusion on how the Section 436.425 should be applied to certain types of preneed contracts.
Section 436.425 begins with the statement that “All preneed contracts ……shall clearly and conspicuously” and then sets out 16 subparagraphs that require certain contract disclosures. Shortly after the passage of Senate Bill No. 1, the Board’s staff recommended a regulation that required a specific disclosure statement be given to each preneed consumer. That ‘mandatory disclosure’ recited all of the Section 436.425 disclosures. In preparing the mandatory disclosure regulation, the staff had applied a very literal interpretation of Section 436.425 to conclude that all disclosures must be included in a preneed contract regardless of its funding source. In doing so, the staff violated one of the basic doctrines of statutory construction: avoid a literal interpretation of a law when such would produce an absurd result. The Missouri Legislature did not intend for trust funded contracts to include insurance disclosures, or insurance funded contracts to make trust disclosures. Such disclosures would only confuse elderly consumers. The State Board eventually came to appreciate this and rescinded the proposed regulation before it was formally promulgated.
While the Board’s examination staff is no longer requiring each preneed contract to include all Section 436.425 disclosures, examiners are still confused about certain disclosures. For example, the Board needs to take a position on the disclosures required for spend down contracts. The examiners are under the impression that consumers making insurance assignments for spend downs must receive a contract that contains disclosures about cash surrender values and policy cancellations. Those types of disclosures are intended when the consumer purchases an insurance policy to fund a preneed contract. When the consumer seeks to assign an existing life insurance policy, the funeral director will not know the policy’s cash surrender value, 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. The Section 436.425 disclosures reflect that intent. The spend down contract funded by an insurance assignment do not pose the same risks as the contract funded by an insurance purchase.
In the next post, we will look at Section 436.425 and trust funded contracts.