Complete Story
07/22/2009
NEW INFORMATION REGARDING NPS
By: T. Scott Gilligan, OFDA General Counsel
INFORMATION REGARDING NPS PROOF OF CLAIM FORM
Funeral homes that hold preneed contracts issued by National Prearranged Services ("NPS") have recently received a Proof of Claim form sent by the Special Deputy Receiver for NPS and its two affiliated insurance companies, Lincoln Memorial Life Insurance Company ("Lincoln") and Memorial Service Life Insurance Company ("Memorial"). The information sent by the Special Deputy Receiver ("SDR") has caused a lot of confusion. NFDA is issuing this information bulletin to assist NFDA members who have received the Proof of Claim forms. Members who have questions after reading this bulletin may contact General Counsel Scott Gilligan at 513-871-6332.
•1. Does the Proof of Claim form that my funeral home has received from the SDR have anything to do with the claims process that our funeral home is currently using to get paid on NPS preneed contracts when a death occurs and we perform the funeral?
Answer: No. These are two matters that are completely separate from each other. When a death occurs and you provide a funeral under an NPS contract, continue to follow the same procedures that you have to get paid on the contract. You will continue to get paid the face amount of the policy. Whether or not you file the Proof of Claim form which the SDR recently sent to you will not impact one way or the other the method you use to file claims on performed NPS preneed contracts or the amount you will receive.
•2. What is the Proof of Claim form all about?
Answer: The SDR has been appointed by the court to liquidate Lincoln, Memorial and NPS. In order to do so, the SDR must determine who has claims against these three entities and how much those claims are. The SDR would then be charged with gathering all of the assets of Lincoln, Memorial and NPS which it can locate and distribute those assets to the claimants of Lincoln, Memorial and NPS in a method approved by the court.
As far as funeral homes are concerned, you do not have a claim against Lincoln or Memorial. This is because the State Insurance Guaranty Funds have taken over those claims and are paying the face amount of the insurance policies when a death occurs. Therefore, the only claim that a funeral home has is with NPS.
NPS guaranteed to each funeral home participating in the NPS preneed program that it would pay the difference between the face amount of the policy and the price of the funeral at the time of need. In other words, NPS is responsible for paying all growth on the preneed contracts. Since the funeral home is no longer receiving any growth on those policies, your funeral home has a claim against NPS for the unpaid growth on these preneed contracts that you will not receive.
•3. How does my funeral home make a claim against NPS?
Answer: In order to make a claim against NPS for the lost growth on all of the NPS policies, the funeral home must file a Proof of Claim form prior to January 23, 2010. The funeral home would have to fill out the Proof of Claim form, indicate that the claim is against NPS, and provide the amount of the claim. You also need to supply documentation to support the claim. A sample grid is attached to show how to supply the needed documentation
•4. How do I determine the amount of the claim?
Answer: The amount of the clam is going to depend upon the NPS contracts which you hold. For those NPS contracts which you have performed since NPS went into receivership (the "liquidated contracts"), you need to determine the amount that NPS should have paid you and the amount that you actually received. For example, if the face amount of an insurance policy on a preneed contract for Mr. Smith was $5,000, you should have already received $5,000 from the State Insurance Guaranty Fund when Mr. Smith died and you submitted the policy for payment. However, you would not have received the growth on the contract which NPS promised would cover all increases in your prices between the time the policy was issued and Mr. Smith's death. If, for example, the funeral at the time Mr. Smith died was $7,500, you would now have a liquidated claim against NPS for $2,500 based upon the Smith preneed funeral contract.
We have attached at the end of this information piece a sample grid by which the funeral home can list the liquidated contracts which it has already performed and the amount of its claim for each of those contract. This grid is only for liquidated contracts, ie, NPS contracts your funeral home has already performed. Since you did not receive the growth from NPS and you can calculate the lost growth, the claim is referred to as a "liquidated" claim. List all of your NPS liquidated contracts on the grid and total the aggregate amount of the claims in the final column.
The trickier part will be making a claim for NPS contracts that you have not yet fulfilled, i.e., the non-liquidated contracts. You must use a separate grid for these claims. One approach you could use is to list today's prices and calculate the amount of the claim as if the death just occurred. While this system will be easier to calculate, it will mean that you are foregoing a claim on the unpaid growth that would accrue in the future. You may want to attempt to project in the future when the preneed contract holder will die and estimate your cost using an inflation factor. The problem is that we have no know what the SDR would consider adequate proof to make this type of claim.
The important thing to remember with the non-liquidated contracts is to make a separate grid for those contracts.
•5. What happens if my funeral home does not file a Proof of Claim by the deadline of January 23, 2010?
Answer: Nothing. All it means is that your funeral home would not participate in any possible recovery against the assets of NPS. The failure to file a claim would not impact at all your funeral home's ability to collect face amount for NPS preneed contracts it performs in the future. You would, however, be giving up any claim you have for the growth against NPS.
•6. What is the possibility that my funeral home may receive any money from the Proof of Claim?
Answer: No one can answer that question at this time. What we do know is that the aggregate liability of NPS under all of the preneed contracts it issued is nearly one billion dollars. We also know from the SDR that there are very few assets of NPS that have been located to pay claims.
What is not known is whether the investigations being conducted by the FBI and government agencies may uncover hidden assets of NPS or assets of NPS insiders which may be utilized to satisfy some of these claims. If that happens, there could be a possible payoff on a pro-rata basis for the claims against NPS. Therefore, while there can be no expectation of a recovery, it probably would be worthwhile to fill out the paperwork and submit it prior to the January 23, 2010 deadline.
Download the NPS Liquidation Claim Form
