Surrender of Preneed Certificate of Authority (Informational Bulletin)

DATE: January 16, 2004 RE: Surrender of Preneed Certificate of Authority (Informational Bulletin) TO: Whom It May Concern It is fair to say one of the primary purposes of the Alabama Preneed Funeral and Cemetery Act (the "Act") is to protect Alabama consumers purchasing funeral and cemetery services and merchandise prior to death (preneed). Generally speaking, the Act accomplishes this purpose in two ways. First, the Act requires preneed providers to set aside at least a portion of the funds paid by consumers for the goods and services purchased, thereby ensuring the money is available when the time comes for the provider to fulfill its obligations under the contract. Second, the Act gives the Commissioner of Insurance the authority to restrict the right to engage in preneed sales to entities and individuals who demonstrate their financial condition is such that they will be in business when their preneed contracts mature. As a part of its effort to meet the aim of protecting Alabama consumers, the Act sets forth specific requirements that must be met by certificate holders who surrender their preneed certificate of authority. Section 27-17A-16 of the Alabama Code provides that surrender of a certificate of authority occurs when a certificate holder either fails to renew its certificate of authority or, after notice to the Commissioner, tenders its certificate to the Commissioner for surrender. Proper surrender of a certificate under this circumstance occurs only upon the Commissioner's acceptance of the surrender. ALA. CODE §27-17A-16 (a) (Cum. Supp. 2003). The Act also requires that, upon surrender of the certificate of authority, the preneed provider "collect and deposit into trust all of the funds paid toward preneed contracts sold prior to becoming inactive." ALA. CODE §27-17A-16 (b) (Cum. Supp. 2003) [emphasis added]. At least one situation clearly contemplated by the Act's surrender provision arises when a certificate holder, for whatever reason, determines it will no longer engage in the funeral or cemetery business, preneed or otherwise. In such a case, the consumers who have paid all or part of the funds called for by their existing preneed contracts will be forced to find other providers to furnish them with the services and merchandise for which they contracted. Because the Act does not ordinarily require any portion of the funds paid on account of a preneed contract to be trusted until all such funds have been paid in full, the surrender provision’s requirement of 100% trusting provides assurance to consumers that all of the funds paid will be available to purchase the services and merchandise from other providers. While it is apparent a certificate holder's express announcement of its intent to surrender its certificate of authority or its failure to submit a renewal application upon expiration of its certificate of authority triggers the Act's requirement that all preneed funds collected be deposited into trust, the Department also considers other events to be equally clear triggers of this requirement. For example, where a preneed certificate holder enters into a transaction or series of transactions that would result in the transfer of virtually all of its assets, it is the Department's position that the certificate holder had, for purposes of the Act, stated its intent to surrender its certificate of authority. Technically speaking, a certificate holder that transfers all of its assets could no longer meet the definition of "funeral establishment" or "cemetery authority" and, consequently, could not qualify for the issuance or renewal of a certificate of authority. This conclusion is bolstered by the above stated purposes of the Act. This informational bulletin is offered as guidance to those engaged in the preneed business who may be contemplating a course of action such as described above. Please be advised this Department will do all it can to protect consumers in these situations by requiring strict compliance with this statute.