A recent opinion has been issued by Ohio Attorney General Mike DeWine concerning Ohio’s two-year old preneed law. The opinion, which is cited as OAG Opinion No. 2011-005 (February 23, 2011), provides very little guidance regarding the new preneed law and, in some respects, injects a fair amount of confusion into how the law will be enforced. In this article, we look at the conclusions of the Attorney General.
Prior to examining the merits of the opinion, it should first be pointed out that an opinion issued by the Attorney General does not have the force of law. While a court will give the opinion significant weight in construing what the law says, the opinion is not binding upon the court. In other words, the court is free to disagree with the Attorney General and adopt a different interpretation of the preneed law than that contained in Opinion No. 2011-005. Nevertheless, the opinion is important because courts ordinarily do give significant weight to the interpretation of the Attorney General. Moreover, the Ohio Board of Embalmers and Funeral Directors (the “Board”) will feel compelled to follow the guidance in the opinion.
Retroactive Impact of New Preneed Law. One of the first things that the Attorney General addressed is whether the changes in the preneed law, which took effect on July 6, 2009, should be retroactively applied to preneed contracts entered into before July 6, 2009. For example, under the former preneed law, if a consumer revoked a guaranteed-price preneed contract, the funeral home could retain 20% of the principal of the preneed trust at cancellation. Under the current preneed law, the maximum amount that can be retained by the funeral home is 10%. Does this new 10% cap now apply to a preneed contract that was entered into prior to July 6, 2009?
Unfortunately, the Attorney General decided to defer to the courts on this question. The opinion explained that the Attorney General does not have the authority to provide an answer to this question since it involves an issue of constitutional interpretation. Therefore, we are still without guidance as to whether the changes in the preneed law apply retroactively to contracts entered into prior to July 6, 2009.
Trust Investments. The Board asked the Attorney General to determine if the Board had the authority under the preneed law to investigate how a trustee chooses to invest money that is deposited into a preneed trust fund. The Attorney General’s answer is, to say the least, confusing.
Although the activities of financial institutions serving as trustees have always been under the regulation of the Ohio Department of Commerce, the Attorney General held that the preneed law authorizes the Board to investigate how a financial institution serving as a trustee invests money in a preneed funeral trust. Having made that surprising finding, the Attorney General then did a 180 degree turnaround and decided that although the Board may investigate how preneed funds are invested, the Board does not have the authority to do any of the following: (1) regulate the actions or investment decisions of a trustee; (2) determine the propriety or reasonableness of investments made by the trustee; or (3) compel the trustee to disclose confidential financial information to the Board. In other words, while the Board has the authority to investigate how a trustee invests preneed trust funds, it cannot question the trustee’s investment decision or compel the trustee to disclose to the Board how the trust funds are invested. Confused? You are not alone.
Preneed trustees in Ohio are authorized to invest preneed funds in any investment vehicle that falls under the Prudent Investor Rule. In addition, according to the Attorney General, the Board cannot determine the propriety or reasonableness of the trustee’s investment decision. That being the case, the Board is without the ability to challenge whether a trust fund investment even falls under the Prudent Investor Rule’s standard. Therefore, as long as the trustee invests the preneed trust funds in any type of investment, the investigatory powers of the Board stop. So the bottom line is that the Board has no real power to conduct any investigation of how a trustee chooses to invest preneed funds.
Trust Fraud. The next inquiry addressed by the Attorney General was whether the Board has the authority to investigate a claim that a funeral director fraudulently received funds from a preneed trust fund, insurance policy or annuity. The Attorney General first concluded that the Board did not have this authority under the new preneed law since that authority is granted only to the Department of Commerce and the Department of Insurance. Nevertheless, the opinion then went on to find that the Board does have the authority to investigate funeral director fraud under its powers to investigate acts of unprofessional conduct by funeral directors. Since the misappropriation of funds constitutes unprofessional conduct, the Board may investigate a claim that a funeral director misappropriated funds from a preneed trust, insurance policy, or annuity.
Preneed Insurance Policy Sales. The final issue addressed by the Attorney General concerns what activities a licensed insurance agent, who does not possess a funeral director’s license, may undertake in the sale of a preneed insurance policy. Although the wording of the Attorney General’s Opinion may cause some confusion, the Attorney General appears to confirm that an insurance agent may not do all three of the following activities in concert.: sell a preneed insurance policy to fund a preneed contract involving funeral services, AND prepare the preneed contract, AND present the preneed contract to the licensed funeral director for signature.
While it would have been more illuminating if the opinion would have addressed each of these three actions individually, the opinion simply concluded that an insurance agent may not take all three actions in combination unless he or she is a licensed funeral director. In that respect, the Attorney General merely confirmed an earlier opinion which it issued in 2001 and which is now codified in the 2009 changes to the preneed law.
In conclusion, Attorney General Opinion No. 2011-005 provides very little direction or guidance on the interpretation or enforcement of the new preneed law. If any OFDA members have any questions regarding the new Attorney General’s Opinion, please contact Scott Gilligan at 513-871-6332.