Consumer Alert

DORA Division of Insurance Alleges Neptune Society Used Bait and Switch

The following is a Colorado Division of Insurance Press Release dated October 3, 2008. To read a PDF of the complaint filed against the Neptune Society scroll down to the end and click on the link.

DORA’s Division of Insurance Alleges Neptune Society Used “Bait and Switch” to Lure Consumers to Purchase Pre-Need Funeral Contracts

Colorado’s Commissioner of Insurance, Marcy Morrison, has ordered representatives of the Neptune Management Corporation, d.b.a. Neptune Society (Neptune) to appear at a hearing to answer charges that the company misled consumers and manipulated prepaid, preneed funeral accounts in order to skirt Colorado law and maximize profits.

An investigation by the Division of Insurance indicated that the Neptune Society was using a “package plan” offer to entice consumers to purchase a particular pre-need funeral services contract. While state law mandates that 75 percent of a pre-need funeral services contract be held in trust to protect the consumer, the Neptune Society created a plan that allowed Neptune to keep, rather than trust, more than half of the entire plan premium.

“We will not stand for businesses that ignore consumer protection laws,” Morrison said. “Pre-need funeral plans are prime targets for scams because the service purchased is not provided until an unknown date far into the future.”

Most pre-need funeral plans require full payment at time of purchase for funeral services, such as burial or cremation, although the purchaser does not know when, in the future, the services will be used. With funeral plans and pre-paid cremation services running thousands of dollars per contract, Colorado law provided that 75 percent of any preneed plan would be held in trust. That way, should the firm close its doors, move out of state, or no longer offer the service purchased, the consumer could still have most of the money returned in order to purchase another plan.

By reducing the amount actually trusted, through a dual-contract system, Neptune has kept approximately $2.6 million of consumers’ money that should have been protected in trust.

Allegedly, Neptune Society skirted the law by inducing consumers to purchase a “package deal” and sign two contracts: one for future funeral and/or cremation services, and a separate contract for the immediate purchase of merchandise, such as a funeral urn, at grossly inflated prices. Most of the funds from the funeral services contract were held in trust, as required, but the funds from the “merchandise” contract were not trusted.

As an example:
• One contract purchaser paid a total package price of nearly $1,333.
• Of that amount, 55% of the package price (about $700) was charged for “upfront merchandise” on a separate contract.

• Rather than place three-fourths of the entire $1333 into trust as required by law, Neptune chose to place only 75 percent of the remaining $610 into trust.

• This means a customer who had paid nearly $1400 for a preneed funeral contract had less than $560 trusted.

• In addition, the “merchandise” costs were inflated with a charge of $349 for a funeral urn valued at approximately $13.

• The “bait-and-switch” is just one of several charges filed against the Neptune Society. Neptune must also answer charges related to: plan and practice to avoid compliance with preneed trusting requirements, violations of the general provider agreements, conditioning the sale of a preneed contract upon the purchase of a second contract, and, violation of several tenets of the Colorado Consumer Protection Act.

With approximately 5,000 pre-paid funeral accounts in Colorado, Neptune confirmed that fully 100 percent of their customers had chosen the “package deal,” which appeared to cost less than purchasing those same items individually. However, the “package deal” allowed Neptune to put as little as 35 percent of the package price in trust, thereby avoiding trusting approximately $525 per each preneed contract. The amount that Neptune has avoided trusting is close to $2,625,000.

The “Notice to Set” scheduling conference will be held Oct. 24, 2008, at 1:30 p.m. at the Colorado Office of Administrative Courts, 633 Seventeenth Street, Suite 1300, in Denver.

At the Oct. 24 scheduling conference, Neptune Management Corporation and the Division of Insurance may agree to engage in alternative dispute resolution, or a date for a full hearing will be set.

Click here to read the court filed complaint against Neptune Society.

Pre-Need Funeral Fraud

The funeral industry seems to have a constant stream of pre-need fraud examples in the press. On September 11th the Colorado Division of Insurance and the Department of Regulatory Agencies (DORA) added to that stream by naming Drinkwine Mortuary in Littleton as the latest violator of the law. Below are the links to the press release that DORA sent out on Thursday about Drinkwine Mortuary in Littleton; and then the information in the Summer 08 DORA Newsletter on Nolan Funeral Home in Colorado Springs, also convicted of pre-need fraud this year.

I applaud the Division of Insurance and the work they have done on these investigations, but it doesn’t go far enough. Here’s why:

1. Funeral homes are required to only deposit into trust 75% of pre-need funds, and they are allowed to keep 25% for operating expenses (paying the commission on the contract to the sales person, etc.) They are also allowed to take the interest earned off of the 75% deposited. That is reasonable. However, how does DORA think that those funeral service contracts where only 75% funded are going to be given 100% of the services when the time comes? Funeral homes should not be able to take the interest until the account is back up to 100% funded. Whether it be 100% from the entire trust to cover all of the funerals, or an individual account. 75% does not equal 100%, ever.

2. As the pre-need consumers die and their families find out they aren’t getting what they paid for, the issue of pre-need fraud will continue to grow. It’s not that it hasn’t been happening for years, it’s just that those policy owners are starting to die in larger numbers and so the fraud is being exposed in a way it hasn’t been before.

3. DORA states that their mission is consumer protection but they don’t go far enough. These families will in all likelihood get an attorney and proceed with a class action civil law-suit. Protecting the families should include reassuring them that their funeral director won’t be able to do to this another family. DORA can’t do that, DORA doesn’t regulate the funeral industry only the insurance industry.

4. Colorado needs a government entity with the authority to keep someone from practicing in funeral service, whether for a period of time or indefinitely, depending on the situation. After all is said and done the person guilty of pre-need fraud can just go down the street and open a funeral home and do the same thing all over again. Maybe they can’t sell pre-need contracts but they can still take care of grieving families.

5. The consumer needs to hear about this in more of a context than two paragraphs in the newspaper. Pre-need funeral plans are not slot machines; you don’t put money in and hope to get more back. These funds and services should be guaranteed.

The Division of Insurance will be introducing a bill in the 2009 legislative session to bring forward stricter pre-need laws. I’m not sure yet if I will testify in favor of the bill or not, my issue remaining is all the laws we currently have in funeral service aren’t doing anything to solve the ultimate problem, which is to attempt to keep the identified bad guys out. How to keep those bad guys out without punishing the good guys is the rub. I recently read an article that the Illinois Funeral Directors Association Trust is missing $40,000,000 in pre-need funds (, so I’m not naïve enough to believe that regulation of the industry in Colorado will solve this because Illinois has adequate regulation. But I am frustrated enough to try. Grieving families deserve better accountability.

Additional Reading:
The National Prearranged Services, Inc. collapse has affected policy holdes in 19 states with over a half a billion dollars in pre-need funding. If you read this article get yourself a cup of coffee first, then plan on 20 minutes. But it’s well worth your time.

Organ Transplant in Britain - You Must Opt Out Instead of Opting In

In the United Kingdom Prime Minister Gordon Brown has gone on record as supporting hospitals to take organs for transplant without the patient’s prior consent.

Only about 24% of the UK population has opted in to the program to donate their organs after death. So, Brown backs moving to a system of "presumed consent" whereby a dead person's organs would automatically be available for transplant unless individuals had opted out of the national register or family members objected.

Are you kidding me?!?
While they’re at it, they may as well set it up so that everyone’s life support is pulled after 24 hours, unless you opt out, and ask for 48!

Opting out generally applies to something that is an annoyance to us and we want to get rid of. We opt “out” of receiving emails from companies whose products we buy. We opt “out” of receiving phone calls from telemarketers. We don’t opt out of organ donation, we opt in.

To take a decision that is as personal and private as choosing organ donation and minimizing it to the point of saying the government has a right to your dead body is just plain wrong. This is the current set up in Spain, although they claim that they ask for prior permission before taking any organs; however, they can legally take your organs without any prior permission from you or your family members. I remember a story, years ago from Spain, when a little boy died in a car accident while on vacation from the U.S. with his family. His organs were taken without the families consent. The family was devastated when they learned what had happened.

Thank goodness we live in a country where (with a few exceptions) we can decide what happens to us when we are alive… and dead.

Martha Thayer Interviewed on Denver News

shapeimage_2-39 Martha-on-News2
Martha L. Thayer, founder of End of Life Insights, has just appeared on Denver’s Channel 7 News. She was interviewed regarding some of the problems with Colorado’s Funeral Service Industry.

In particular, she is an expert witness in a current legal case, where a man claims to have not been given his mother’s ashes by a Denver crematorium:

-- Click Here to Read the Story --
-- Click Here to Watch the News Coverage --