California Sues Over Pre-Paid Funerals

Funeral homes marketing pre-paid funeral services are coming under closer scrutiny, with California the latest state to take action.

California Attorney General Kamala Harris is suing one of the nation's largest funeral trusts, which she says pooled the funds of more than 27,000 California consumers who prepaid for funerals for themselves or loved ones.

The complaint claims the organization engaged in conspiracy and kickbacks while illegally diverting some $14 million.

Restitution

The suit, seeking a permanent injunction and restitution to consumers, names the California Master Trust, the California Funeral Directors Association, and other defendants.

"The defendants preyed upon thousands of Californians at one of the most vulnerable times of their lives," Attorney General Harris said. "This lawsuit will make sure their money goes where it was intended: to pay for their funerals or the funerals of loved ones."

The trust, created in 1985 by the funeral directors, is a "preneed" funeral trust that pools the prepaid funeral payments of individual purchasers throughout California. It controls about $63.5 million, according to the state.

Marketers of "pre-need" funeral services have drawn law enforcement attention in recent years. Last November six top officials of National Prearranged Services, Inc. (NPS) were hit with a 50-count indictment charging wire, bank, mail, and insurance fraud; money laundering; and multiple conspiracy charges involving the sale of pre-paid funeral services.

Previous actions

In 2005, Missouri's attorney general filed a broad range of legal actions to protect consumers who purchased pre-need funeral plans and cemetery headstones. The coordinated filings, dubbed Operation Grave Concerns, involved approximately 500 Missourians who paid more than $800,000 for the services.

In 2007, a California Department of Insurance (CDI) investigation found that the former owner of Valley Funeral Home in Murrieta, Calif., sold "pre-need" burial plans to senior citizens, including residents of area nursing homes, then pocketed the premiums and left her elderly clients without funeral coverage.

The current California lawsuit claims that, by the end of 2009, some 27,000 California consumers who were customers of more than 300 funeral establishments, had entrusted funds with the organization for their own or loved ones' funeral services. They were "among California's most vulnerable and trusting consumers," according to the suit.

Preneed funeral contracts are usually purchased by the elderly and paid in installments. Seven years elapse on average between a consumer's purchase of a preneed contract and the beneficiary's death.

The suit alleges that millions of dollars of consumers' money paid to the trust was misspent or mismanaged, that defendants paid at least $4.6 million in illegal kickbacks to funeral homes, and that the defendants paid themselves excessive administrative fees.