Complete Story
 

02/02/2010

NPS UPDATE: NO ORPHAN CONTRACTS IN OHIO

By: T. Scott Gilligan, OFDA General Counsel

NPS UPDATE: NO ORPHAN CONTRACTS IN OHIO

by

T. Scott Gilligan

OFDA General Counsel

            One of the unresolved issues in the liquidation of National Prearranged Services ("NPS") was the treatment of the orphan contracts.  Orphan contracts are those preneed contracts that were issued through NPS but were never funded by the purchase of an insurance policy.  Since no insurance policy was ever issued to fund these contracts, there is an issue as to whether the state insurance guaranty associations are legally obligated to pay the face amount of the preneed contracts to the funeral homes when the preneed contract is performed.  The Special Deputy Receiver ("SDR") has asked the court overseeing the NPS liquidation for permission to treat these contracts as unfunded.  This could leave the funeral homes holding these orphan contracts in a situation where they may not receive any compensation from the insurance guaranty association or the SDR for performing the orphan contract.

            Of the 200,000 preneed contracts issued by NPS, the SDR has determined that there are approximately 5,400 orphan contracts.  On January 15, 2010, the SDR issued a 154 page list of the 5,400 orphan contracts.  Fortunately, none of the funeral homes holding the 5,400 preneed contracts are located in the State of Ohio. 

Of the 5,400 orphan contracts, over 93% of these contracts are held by funeral homes located in the State of Missouri.  The funeral homes holding the 351 orphan contracts that do not originate from Missouri are situated in 14 other states.  The state with the largest number of orphan contracts, other than Missouri, is Arizona with 152.  States in the Midwest with orphan contracts include Iowa with 8, Illinois with 9, Indiana with 7, and Kentucky with 6. 

On behalf of the Missouri funeral homes that hold 5,063 orphan contracts, the Missouri Funeral Directors Association ("MFDA") has filed objections to the SDR's attempt to abandon the orphan contracts. The MFDA also reports that the Missouri Insurance Guaranty Association appears to be working with funeral homes holding orphan contracts to negotiate funding.

OFDA members with questions regarding this matter may contact Scott Gilligan at 513-871-6332.