Monday, August 27, 2007

"Preneed Funeral Contracts" in PA

On August 25, 2007, the Pennsylvania State Board of Funeral Directors issued proposed regulations that would amend the rules governing preneed funeral contracts and the funds paid for such arrangements, including their transfer & sale in the Commonwealth.

The proposed regulations were published in the
Pennsylvania Bulletin, as Document No. 07-1549, at 37 Pa.B. 4643. These regulations would implement provisions of the Pennsylvania Funeral Director Law, 63 P.S. §§ 479.1 - 479.20.

More technically, the proposed regulations would amend Title 49 of the Pennsylvania Code, in Sections 13.1, 13.224, 13.225 and 13.226 and would add Sections 13.227, 13.228 and 13.229 (relating to limitations on preneed funeral contracts; transfer of a preneed funeral contract by customer; and sale or transfer of preneed funeral contracts or preneed funeral funds by a funeral director).

Years ago, the
AARP Public Policy Institute, of Philadelphia, PA, had provided general background, not specific to Pennsylvania, on the subject of preneed funeral arrangements, which are not the subject of federal regulation:

See also: "Funerals: A Consumer Guide", posted by the Federal Trade Commission (June, 2000).

On February 12, 2005, changes to regulations had been proposed that would have governed the sale of funeral arrangements & the application of funds for such services, generally, and preneed funeral arrangements, specifically. But litigation ensued, first in federal court, and then in the Commonwealth Court, regarding the basis for state regulation of the sale of certain funeral services. These disputes delayed implementation of the original proposed regulations.

Pre-Need Family Services Eastern Region v. Bureau of Professional and Occupational Affairs, No. 2052 C.D. 2005, issued July 26, 2006, the Commonwealth Court affirmed the jurisdiction, findings, & rulings of the BPOA regarding such matters:
Relying on this court’s decision in Cornerstone Family Services, Inc. v. Bureau of Professional and Occupational Affairs, 802 A.2d 37 (Pa. Cmwlth. 2002), aff’d, 577 Pa. 136, 842 A.2d 918 (2004), the Board held that it had jurisdiction to determine whether Pre-Need’s sale of cremation services directly to the public constituted the unlicensed practice of funeral directing.

The Board then concluded that Pre-Need’s activities constituted the unlicensed practice of funeral directing in violation of sections 13(a) and 13(c) of the Law, 63 P.S. §§479.13(a), (c).

Accordingly, the Board directed Pre-Need to cease and desist its unlicensed activities and to pay a civil penalty in the amount of $1,000.
The Commonwealth Court noted that state regulation of the sale of funeral services varies considerably. See: Footnote 11 on page 12, which cited statutes in Florida, Georgia, & Mississippi. The Court concluded that sale of direct cremation packages to the public constituted the “practice” of “funeral directing”, which was regulated by the Pennsylvania Funeral Director Law.

After clarifications from these courts, and after consideration of public comments, modified final regulations were eventually adopted by the SBFD.

The final set of regulations, published on May 26, 2007, deleted
references to preneed funeral arrangements. See: 49 PA. Code, Ch. 13, finalized per publication in the Pennsylvania Bulletin at 37 Pa.B. 2412.

In its comments upon adoption of a modified form of regulations, the
SBFD explained its approach:
As [previously] proposed, new § 13.202(13) would have prohibited a funeral director from retaining funds for goods or services that the funeral director has not provided, or that exceeded the value of funeral goods and services that the funeral director has provided. Various commentators, including the HPLC [House Professional Licensure Committee] and IRRC [Independent Regulatory Review Commission], were concerned about how this proposed amendment would impact preneed funeral arrangements.

When the funeral director has received those funds under a preneed agreement, the Board concludes that issues concerning entitlement to payment should be addressed through comprehensive rulemaking specific to preneed funeral arrangements.

Accordingly, in this final-form rulemaking the Board has specifically excluded preneed funeral arrangements. * * *

The Board [previously] proposed adding § 13.202(17) to prohibit a funeral director from aiding a person or entity that the funeral director has reason to believe is attempting through unlicensed persons or entities to engage in preneed sales.

Subsequent to the publication of the proposed rulemaking, the Federal District Court for the Middle District of Pennsylvania noted in Walker v. Flitton, 364 F. Supp. 2d 503 (M.D. Pa. 2005), that the Board has not set forth by regulation what unlicensed employees and agents may lawfully do in the realm of preneed sales. Accordingly, the Board decided not to adopt this paragraph as part of its misconduct regulation and instead will address this issue through separate rulemaking.
That "separate rulemaking" resulted in the publication of the presently proposed regulations specifically on preneed funeral arrangements.

This is the published summary of the proposed new regulations:
In § 13.1 (relating to definitions), definitions of ''prepaid burial contract'' and ''prepaid burial account'' would be deleted and replaced with definitions of new terms ''preneed funeral contract'' and ''preneed funds.'' The proposed definition of ''preneed funds'' would exclude premiums paid directly to an insurance company to purchase a life insurance policy. However, preneed funds would include amounts to be paid for arrangement fees or additional allowance for other services or merchandise. Preneed funds would also include the assignment of a life insurance policy or other asset received by a funeral director to fund a preneed contract.

Section 13.224 requires a funeral director to deposit in escrow or transfer in trust money received under a prepaid contract. The Board proposes to amend subsection (a) to require the deposit or transfer be made within 10 days of receipt. In addition, the Board proposes to add a provision to prohibit a funeral director or entity from using another person or entity to avoid this requirement. Currently, a funeral director must submit to the Board a written report every time the funeral director enters into a prepaid burial contract or performs under a prepaid contract. Under proposed subsection (b), a funeral director would be required to report to the Board all preneed accounts on a quarterly basis, including activity during that quarter. A funeral director could submit these reports on paper or disk or electronically and must maintain copies of the report for 3 years. A funeral director closing a business would be required to submit a report showing how all funds were distributed. These reports are not public records and will not be available for public review.

The limitations proposed for contract provisions are added in § 13.227. Under the proposed rulemaking, every preneed contract must be in writing. Also, a funeral director performing under a preneed contract would be prohibited from charging or collecting any fee that exceeds the fees set forth in the funeral director's current price list at the time the service or merchandise is provided. In addition, a preneed contract may not incorporate a contract with an unlicensed person or entity.

Proposed § 13.228 would govern customer transfers of preneed funds to another funeral director or funeral entity. Every preneed funeral contract entered into after the effective date of the final-form rulemaking must expressly permit the customer to transfer the preneed funeral account and funds to another funeral director or funeral entity of the customer's choosing that will provide funeral goods and services. The funeral director would be required to forward to the other funeral director the entire amount of preneed funds, including both principal and interest or other earnings, within 30 days of notice from the customer. The proposed rulemaking would prohibit a funeral director from collecting a fee for funeral goods or services that have not been provided or liquidated damages for the cancellation.

Proposed § 13.229 would govern funeral director transfers of preneed contracts or funds. It would require a funeral director or entity that acquires a portion of the preneed business of another to notify each customer and provide each customer with the opportunity to transfer the contract and funds to another funeral director of the customer's choosing. A funeral director ceasing preneed business must notify each customer and provide each customer with the opportunity to transfer the preneed funds to another funeral director of the customer's choosing.

The proposed regulations are set forth at length in the published notice of proposed rulemaking.

That notice invites public comment:
Interested persons are invited to submit written comments, suggestions or objections regarding this proposed rulemaking to Michelle T. Smey, Administrative Officer, State Board of Funeral Directors, P. O. Box 2649, Harrisburg, PA 17105-2649 within 30 days of publication of this proposed rulemaking in the Pennsylvania Bulletin. Reference No. 16A-4815 (Preneed funeral arrangements) when submitting comments.