MAKING CLAIMS ON NPS PRENEED INSURANCE POLICIES
By T. Scott Gilligan, OFDA General Counsel
In the past two weeks, the Special Deputy Receiver for NPS, Lincoln Memorial Life Insurance Company, and Memorial Service Life Insurance Company has issued several releases and claims instructions to funeral homes holding NPS-funded preneed contracts. Unfortunately, the wording in some of the releases and instructions has caused confusion and consternation to funeral homes holding NPS preneed contracts. In this update, we attempt to clarify the confusion. We also would like to thank Don Otto, Executive Director of the Missouri Funeral Directors and Embalmers Association, for his work in obtaining much of this information from the Special Deputy Receiver.
1.Our funeral home has received information from the Special Deputy Receiver indicating that the State Guaranty Associations do not pay on funeral contracts, but only on insurance policies. What does that mean?
This statement was made to clarify that the State Guaranty Associations will only pay the face amount of the preneed policies that are used to fund the preneed contracts. For example, if a consumer purchased a $5,000 NPS policy to fund a $5,000 preneed contract in 2003, but the funeral is performed in 2008 at an at-need cost of $6,500, the State Guaranty Association will only pay $5,000 (the face amount of the insurance policy) to the funeral home. This statement was made to clarify that they are not guaranteeing to pay the entire amount due to the funeral home under the preneed contract, i.e. $6,500. The State Guaranty Association will only be responsible for the $5,000 face amount of the policy.
2.We submitted several claims on NPS policies prior to October 22, 2008, the date the liquidation plan became final under the court order. Why have these claims not been paid and do we need to submit additional information to have the claims paid.
Earlier this summer, the Special Deputy Receiver ran out of funds to pay death benefits on NPS insurance policies. Until the Texas court approved the liquidation plan, which made State Guaranty Associations responsible for paying on the NPS policies, there were no funds to pay death benefits.. With the liquidation plan now finalized, payments will restart and the Special Deputy Receiver will work to clear up and pay past claims. In addition, the Special Deputy Receiver has clarified that new release forms and itemized funeral bills will not be necessary for claims that were already filed on or prior to October 22, 2008. Therefore, funeral homes that have filed claims on or prior to October 22, 2008 should be receiving payments shortly.
3.How do we make a claim after October 22, 2008?
In order to make a claim, you need to send a copy of the death certificate, the verified statement of performance, and an itemized funeral bill for the funeral merchandise and services provided to the Receiver. The itemized funeral bill should show the at-need prices of the goods and services provided by the funeral home. That information must be submitted to the Special Deputy Receiver Claims Department by fax at 512-328-0072 or by mail sent to Claims Department, P.O. Box 160050, Austin, Texas 78716. The funeral home also needs to submit IRS Form W-9 with the first claim that it files after October 22, 2008. The Form W-9 needs to only be submitted one time and need not be included with subsequent claims..
Once the claim has been filed, the Special Deputy Receiver will forward a Release, Subrogation and Assignment form (the "Release") to the funeral home with the individual claim information noted. In order to receive payment, you will need to sign the Release and resubmit it back to the Special Deputy Receiver using the contact information listed above.
4.Why do we need to sign a Release? It appears from the Release that we are giving up all of our rights against NPS and others who may be responsible for these problems.
By signing the Release, the funeral home is only giving up its claim for the face amount of the policy. Using the example from above, if the funeral home signs a Release for the $6,500 funeral that is funded by a $5,000 NPS policy, it is releasing only its claims for the $5,000 (which it will subsequently receive from the State Guaranty Association). It would still have a claim against NPS for the $1,500 that it is not receiving under the NPS contract. The Release is required by state law in order to allow the State Guaranty Association to pay the claim. In essence, the funeral home is transferring to the State Guaranty Association the right to seek reimbursement of the $5,000 from NPS. To repeat, the funeral home is not giving up its rights against NPS for breach of contract for the additional $1,500 which was not paid.
5.Why do we have to submit an itemized bill showing the at-need prices for the goods and services being provided if the Special Deputy Receiver will only pay the funeral home the face amount of the policy?
The Special Deputy Receiver needs to confirm that the contract amount of the original preneed contract is not more than the current prices you are charging. Again, taking the above example, if the funeral home provides only $4,500 worth of goods and services, the Special Deputy Receiver cannot pay the $5,000 to the funeral home; it would only be able to pay $4,500. While it is highly unlikely that the funeral bill would ever be less than the face amount of the policy, the Special Deputy Receiver needs to confirm that fact prior to payment. This is why there is a two step process in getting paid by the Special Deputy Receiver.
6.The Special Deputy Receiver has instructed that not only must the funeral home sign the Release, but we must also have the next of kin or personal representative of the estate sign the Release. Is this really necessary?
You have the option of having the next of kin or personal representative sign the Release or, instead of tracking down the next of kin/personal representative for the signature, the funeral home can sign the Indemnity Agreement and send it back with the Release to the Special Deputy Receiver to complete your claim. The option is with the funeral home.
The Indemnity Agreement simply makes the funeral home responsible if the next of kin or personal representative sues the Special Deputy Receiver or the State Guaranty Association. Of course, the risk of that is virtually nil since the State Guaranty Association will be paying the face amount of the policy and the preneed contract beneficiary will receive the funeral that was paid for. Under these circumstances, there would be no reason for the next of kin or personal representative to sue anyone. But under state law, the State Guaranty Association needs the next of kin/personal representative to sign the Release or the funeral home to sign the Indemnity Agreement.
7. Our funeral home received a questionnaire from the FBI concerning NPS. Should we respond or is this a hoax?
The Missouri Funeral Directors and Embalmers Association has confirmed that the FBI is investigating NPS and has sent out a questionnaire to several funeral homes. Funeral homes are encouraged to fill out the questionnaire and return it to the FBI.
OFDA members with questions regarding NPS may contact Scott Gilligan at (513) 871-6332.