HCS SS SCS SB 1 -- PRENEED FUNERAL CONTRACTS

SPONSOR:  Scott (Wasson)

COMMITTEE ACTION:  Voted "do pass" by the Special Committee on
Professional Registration and Licensing by a vote of 14 to 0.

This substitute establishes licensing requirements for sellers,
seller agents, and providers of preneed funeral contracts and
establishes the Missouri Preneed Funeral Contract Act.

LICENSURE OF PRENEED PROVIDERS, SELLERS, AND AGENTS

The substitute:

(1)  Authorizes the State Board of Embalmers and Funeral
Directors within the Department of Insurance, Financial
Institutions and Professional Registration to employ legal
counsel;

(2)  Exempts endowed care cemetery operators from licensure
requirements;

(3)  Requires applicants for a preneed provider license to make
application with the board; pay a licensing fee; be registered to
conduct business in this state with the Secretary of State;
identify the custodian of records and all sellers authorized by
the provider to sell preneed contracts; and give authorization to
the board to inspect, examine, investigate, or audit all records;

(4)  Requires applicants for a preneed seller license to make
application with the board; pay a licensing fee; be a Missouri
resident who is 18 years of age or older or registered to conduct
business in this state with the Secretary of State; identify the
custodian of records and all providers which have authorized the
seller to designate the person as a provider under the contract;
identify the financial institutions where any preneed trusts or
joint accounts are held; and give authorization to the board to
inspect, examine, investigate, or audit all records;

(5)  Requires applicants for a preneed agent registration to make
application with the board; pay a registration fee; be 18 years
of age or older; and identify each seller for whom they are
authorized to sell preneed contracts;

(6)  Authorizes the board to refuse to issue, suspend, and revoke
certificates of registration or licenses and cause complaints to
be filed with the Administrative Hearing Commission for the
activities specified in the substitute; and

(7)  Authorizes the board to adopt and enforce rules for the
transaction of its business and for the standards of service and
practice to be followed in the professions of embalming, funeral
directing, and selling preneed funeral contracts.

MISSOURI PRENEED FUNERAL CONTRACT ACT

The substitute:

(1)  Specifies that the provisions of the act will apply only to
preneed contracts made after the effective date of the
substitute;

(2)  Requires the provider listed in the contract to provide
final disposition as specified in the contract;

(3)  Requires the seller to collect and properly deposit and
disburse all payments made by a purchaser to ensure a contract is
managed in compliance with the provisions of the substitute;

(4)  Requires written contractual agreements between providers
and sellers.  Providers must notify the board of the contractual
relationships;

(5)  Specifies that preneed contracts must be in writing; include
the name, address, and phone number of the purchaser and
beneficiary; include the name, address, phone number, and license
number of the provider and seller; provide details of the final
disposition; identify the funding mechanism of the contract;
include notice that the cancellation will not affect any life
insurance used for funding of the contract; include notice that
the purchaser will receive the cash surrender value of any
insurance funding the contract if canceled at a designated time;
include notice that the purchaser may transfer the provider
designation; identify whether the contract is revocable or
irrevocable; establish the terms for a cancellation; identify the
trust or joint account where the money will be deposited; include
the name, address, and phone number of any insurance company
issuing a policy to fund the contract; identify if the contract
is guaranteed or nonguaranteed; and include any required consumer
disclosures;

(6)  Designates preneed contracts as irrevocable only if the
purchaser is eligible to receive public assistance;

(7)  Allows purchasers to cancel or rescind revocable contracts
with or without cause;

(8)  Requires sellers of trust-funded contracts to deposit 100%
of the payments into a trust within 60 days of the receipt of the
money.  Trustees will be state or federally chartered financial
institutions authorized to exercise trust powers in this state;

(9)  Allows for the commingling of two or more contracts within
one trust;

(10)  Allows all expenses and taxes incurred by the trust to be
paid from income generated by the trust;

(11)  Entitles the seller and provider to income generated by the
trust as stipulated in the contract;

(12)  Requires the provider and the authorized person on behalf
of the beneficiary to sign the certificate of performance when
requesting payment from the seller;

(13)  Requires trustees to be held to the prudent investor
standard and to diversify the investments in the trust, unless
the trustee determines it would be better served without
diversification;

(14)  Prohibits providers, sellers, and preneed agents from
collecting from the purchaser of an insurance-funded contract any
amount in excess of what is required to pay the premiums on the
insurance policy.  Sellers cannot collect any fees from the
purchaser of an insurance-funded contract, other than those fees
assessed by the insurer;

(15)  Prohibits the use of a term life insurance policy to fund a
contract;

(16)  Allows sellers and purchasers to use joint accounts to fund
contracts;

(17)  Requires financial institutions to disburse funds from
canceled joint account contracts to the purchaser within 15 days
of cancellation.  In cases of a canceled trust-funded contract,
the trustee must return all of the trust property, less interest,
to the purchaser;

(18)  Gives a seller the right to cancel a contract which is in
default for 60 days.  Purchasers may remit delinquent payments if
the seller chooses not to cancel the contract.  Upon cancellation
by the seller, 80% of the contract payments will be refunded to
the purchaser;

(19)  Allows purchasers to choose alternate providers under the
original contract at no charge.  When this occurs, the seller has
the option of canceling the contract by paying the provider all
of the trust property, including the principal and interest;

(20)  Requires sellers to file annual reports with the board
containing the name, address, and contract number of each
contract sold in the last year; amount of each contract sold;
name, address, and license number of each preneed agent
authorized to sell on the seller's behalf; number of contracts
fulfilled in that year; name and address of each provider with
whom they have contractual arrangements; name and address of each
custodial record keeper; written consent to examine accounts and
records; and certification that the report is accurate and
complete;

(21)  Authorizes the board to establish an annual reporting fee
for each preneed contract sold in the year since the date of the
last report;

(22)  Authorizes the board to conduct random inspections,
investigations, and audits of providers, sellers, and agents and
any trust and joint account holding assets to fund contracts.
Subject to funding availability, the financial examinations of
sellers of contracts must be conducted at least once every five
years;

(23)  Gives the board subpoena power for the production of
records;

(24)  Allows the board; Division of Finance; Department of
Insurance, Financial Institutions and Professional Registration;
and the Attorney General's Office to share information regarding
any inspection, investigation, examination, or audit;

(25)  Requires providers and sellers who cease doing business in
this state to notify the board at least 60 days prior to the
liquidation of assets or stock;

(26)  Allows contracts to offer credit life insurance; and

(27)  Requires the board to maintain as a closed and confidential
record all personal information about any preneed purchaser or
beneficiary.

Anyone violating the provisions of the substitute will be guilty
of a class C felony.

FISCAL NOTE:  Estimated Cost on General Revenue Fund of Unknown
less than $100,000 in FY 2010, FY 2011, and FY 2012.  Estimated
Income on Other State Funds of $115,653 in FY 2010, $85,195 in
FY 2011, and $68,651 in FY 2012.

PROPONENTS:  Supporters say that the board began receiving
information in 2008 that National Prearranged Services (NPS) may
have illegal shortages in its preneed trust accounts.  There were
also reports that the trusts in question were comprised of term
life insurance policies instead of cash and these term polices
were allowed to lapse and having no cash value, the money
disappeared.  Proponents believe that this was brought about due
to the lack of authority given to the board in Chapter 436, RSMo.
The board has no authority to go after bad actors in the preneed
industry unless formal complaints are filed when it can audit the
trust accounts to determine whether the funds are being handled
in a prudent manner.  All agree that there are many problems, and
adopting the recommendations of the Chapter 436 worker group will
greatly improve the industry for market participants and
consumers.  There is a need for a system of random and regular
audits and for addressing portability, cancellations, and
reporting.  These revisions are vital for consumer protection.
If a situation like the NPS debacle were to occur again, it would
create a crisis which could destroy the funeral industry in
Missouri.

Testifying for the bill were Senator Scott; Representatives
Wasson and Meadows; Division of Professional Registration,
Department of Insurance, Financial Institutions and Professional
Registration; Office of the Attorney General; State Board of
Embalmers and Funeral Directors; Missouri Funeral Directors and
Embalmers Association; Bill Trimm, Silver Haired Legislature; Kim
Woodard; Lindley Funeral Home; Brad Speaks; Lisa Ballows; Bruce
Dockens; and Jerry Griffin.

OPPONENTS:  Those who oppose the bill say that the issue
regarding the amount of funds placed into trust is vital to many
preneed providers in order to stay in business.  The authorized
percentage administrative fee is necessary to cover the costs of
doing business.  There is a need to audit the insurance companies
which are funding preneed accounts and to remove the good moral
character clause regarding licensees.

Testifying against the bill were John Britton, Missouri Preneed
Coalition; and George Cline.

OTHERS:  Others testifying on the bill say that preneed funeral
contracts should be done away with.  Others ask how can funds be
guaranteed by funeral homes if they are not a party to the
transactions and should they be obligated to pay.

Testifying on the bill were Marvin Myers; Jamey Dockens; and John
Moore.

Missouri House of Representatives
95th General Assembly, 1st Regular Session
Last Updated November 17, 2009 at 9:26 am