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’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.

The Missouri Funeral Board: Was There a 2014 Warning?

Posted in Compliance, Missouri - SB1

Starting with its 2014 fiscal year, the Missouri State Board of Embalmers and Funeral Directors has initiated 334 complaints against Missouri funeral homes.  That is an average of 11 complaints per month.  During the four years that preceding 2014, the State Board filed only 77 complaints against funeral homes, or an average of 1.5 complaints per month.  What happened in 2014 that prompted the State Board to begin filing so many complaints?  Had the first round of financial examinations uncovered rampant preneed fraud within the industry?  One rumor suggested that the Attorney General’s Office had rebuffed a State Board request to file a preneed disciplinary complaint with the Administrative Hearing Commission.   Supposedly, the Attorney General declined the request because the Board had a reputation for lax enforcement, and that caused the Board to adopt a zero tolerance towards licensee compliance lapses.

In 2014, tensions were running high between the State Board and the Missouri Funeral Trust, and so we don’t doubt that the State Board approached the Attorney General’s Office regarding a disciplinary proceeding.  The conflict was further inflamed when the Missouri Funeral Trust subsequently filed its own lawsuit against the State Board.  The circumstances lend credibility to the rumor, but one aspect of the rumor fails the sniff test.  The State Board did not have Chapter 436 enforcement powers until Senate Bill No. 1 was passed in 2009.  So, how could the State Board have a reputation for lax preneed enforcement when it previously had no such powers?  The State Board was only 4 years into the financial examination process, and most sellers’ exams were still open.

We cannot help but to wonder whether the Attorney General’s Office declined the State Board request on other grounds.  The State Board has yet to pass regulations regarding critical requirements of Chapter 436, and perhaps the Attorney General’s Office raised that issue back in 2014.   Rather than defer enforcement until rules could be formally adopted pursuant to Chapter 536, the State Board moved forward on a zero tolerance program that relied upon outside counsel to file discipline proceedings when licensees did not capitulate.  Of the 334 complaints filed since 2014, how many would the Attorney General have rejected for the lack of a formal regulation or because the complaint represented an overreach of an existing regulation?

Missouri Policy Changes: Return to Start, Do Not Pass Go or Collect $200

Posted in Missouri - SB1

Over the past couple of years, the Missouri State Board of Embalmers and Funeral Directors implemented a number of policy changes that affected the funeral industry.  New requirements were imposed on licensing and reporting, and complaints were filed against licensees that failed to comply with those new requirements.  It is not uncommon for a state agency to define an action as a policy (as opposed to a rule) so that it does not have to comply with Missouri’s Administrative Procedures Act (Chapter 536).   However, many of the State Board’s policy changes are reflected in rule proposals that have been approved by the State Board, but never finalized pursuant to Chapter 536.  Other policy changes were based on a “new” interpretation of an existing regulation.  In either situation, the State Board was required to comply with Chapter 536 before implementing the policy change.  In failing to do so, each policy change subject to Chapter 536 will be voided when challenged in court, and the prevailing licensee could be awarded attorneys’ fees.

Missouri State Board of Embalmers and Funeral Directors: Ten Years after NPS

Posted in Compliance, Exams/audits, Missouri - SB1

Ten years after the collapse of NPS, the Missouri State Board of Embalmers and Funeral Directors has a confidence problem with licensees and legislators.  Licensees see a regulator that is obsessed with DBAs, renewal reports, and exams that focus on contract provisions.  Legislators see a regulator that will not fulfill the SB1 mandate to protect consumers.   Compounding this confidence problem, the Board staff persists in implementing changes without complying with Missouri laws.

In response to our December Regulatory Report, we received a letter written by an attorney claiming to represent the Board Chairman. The letter disputed that there is a formal review process for rules approved by the State Board.  That gross misstatement of Missouri law prompted us to make several open record requests to the State Board.  It is widely known that the Chairman was dissatisfied with the Division attorney formerly assigned to the Board, and we sought to determine whether the Board Chairman or Executive Director were seeking legal advice from the Division.  But, the Division responded to our request by advising the Sunshine Law does not require the disclosure of communications that would be protected by the attorney/client privilege.  That response begs the question whether the staff had sought legal advice, or is flying blind when implementing changes and pursuing discipline.

Our open record requests also sought communications among the Board members and staff.  We hoped to learn what input was sought from members before changes were implemented by the staff.  The Board did respond to those requests and we learned that changes were typically implemented without any input sought from Board members.

When NPS collapsed, the Missouri General Assembly moved quickly to establish a joint legislative committee for preneed reform.  That legislative joint committee requested the State Board form a working group for recommendations to the General Assembly.  The Chapter 436 Working Group met six times over the course of several months.  Two hotly debated issues were whether the State Board should retain jurisdiction over preneed, and if so, whether the Board should be given preneed rulemaking authority.

The Working Group recommended that the State Board retain preneed jurisdiction so that Board’s industry members could bring their experiences to future deliberations about preneed programs.  That recommendation was endorsed by Working Group representatives from the Division of Finance and the Division of Insurance.  The Working Group also recommended that the State Board be given preneed rulemaking authority so that it would have flexibility in responding to issues.

But, what we have learned is that the Board staff has implemented licensing and discipline requirements without seeking input from Board members, or from the industry.  Some requirements exceed the Board’s statutory authority, which suggests that the staff also acted without seeking input from the Division legal office.  And, requirements impacting the industry were implemented without compliance with Chapter 536.   This is not the preneed reform that the Missouri General Assembly intended.  We will explore the repercussions of these failures in future posts.

Missouri Funeral Board: Another Cure for Memory Loss

Posted in Compliance, Exams/audits, Missouri - SB1

The latest rumor being spread about the Missouri State Board of Embalmers and Funeral Directors is that the Board members met in a closed executive session without staff or attorneys to discuss the need for change in the legal representation of the Board.  According to the rumor, the decision was made to send the Board chairman to the Division of Professional Registration to request a change in attorneys.  Such a meeting would have occurred at the September 22, 2017 Board meeting, or at an impromptu Board meeting between September 23rd and October 17th.  The Board’s change in legal counsel began with the October 18th meeting.

The State Board’s website does not reflect any meeting notices between the dates of September 22nd and October 18th.   Minutes of the September 22nd meeting are not available to reflect whether the Board members met in an executive session.   There were no video cameras present during the September 22nd open session, and so it is doubtful any closed executive session was recorded.  If the legal representation meeting was held subsequent to September, no notice was given.  Apparently someone’s memory has grown fuzzy.   Missouri’s Sunshine Law is intended for such lapses in memory.   However, the January 13th letter described in our prior blog post states that Board members are barred from disclosing information discussed in closed sessions, and individuals who release such information may be fined $100,000.  If accurate, does this mean the Board members cannot discuss what happened at the secret executive session or when it occurred?  If so, the rumor might mean someone is taking a big risk in attempting to set the record straight.  As for the veiled threat made in that letter against this author, we’ll take the safe route and make some open records requests.  The question is how far back we have to go to determine when the Board’s memory lapses began and how many times the Sunshine Law has been broken.