NEW ORLEANS -- Brenda Ohrabka isn’t ready to put to use the burial insurance policy her parents bought her 58 years ago. And even if she were, she isn’t sure she’d want the dull, dour funeral service it describes.
“When I die, I want a party!” she said.
Still, she was angry when she found out a 2004 state law rendered the insurance policy next to worthless.
“I feel like they stole from my mom. How would you like to walk into the funeral parlor and say, ‘Here, I have my policy,’ and you give them the policy and they say, ‘No, that’s no good. It’s only worth $200?’” Ohrabka said. “At that time, those people are so vulnerable, they’re going to be emptying out their bank accounts to bury their person because they’re going to feel responsible.”
Perry Melancon of Gonzales found himself among “those people” this month when he had to bury his mother. He was shocked to learn that the $500 policy her parents took out for her in 1951 wouldn’t provide the funeral it described. In fact, it could barely cover the cremation.
What did he say when he found out?
“What can you say? It's time to bury your mother,” Melancon said. “You can't dicker with people with something like that. We just had to get it done.”
Ohrabka and Melancon couldn’t believe that these insurance policies – in spite of laying out in great detail the specific funeral services to be provided – are now worth only a cash payment or credit for their face value. In other words, they are really nothing more than a layaway plan, with no interest earned -- or even credit for inflation.
After all, based on inflation alone, $500 in 1951 is worth $4,472 today – enough to cover most basic funerals.
But in 2004, backed by powerful lobbyists, funeral homes and insurance companies pushed the Legislature to eliminate any ambiguity about the value of these policies. They added to the 1906 burial insurance law, to make it clear that they no longer have to provide the funeral services printed on those yellowing pages.
“Under no circumstances shall an insurer be required to provide services … at amounts greater than the stated dollar amount of the policy,” the new language said.
The change in the law can seem like a cruel power-play by the funeral homes, especially in the context of the national ridicule they’ve received recently for the way they used another piece of special legislation. National news outlets called them a “cartel” when they used special licensing requirements that they had added to state laws in an effort to stop monks at St. Joseph’s Abbey in Covington from selling the wooden caskets they had been making for decades.
The funeral homes’ exclusionary practices were shot down earlier this year by the U.S. 5th Circuit Court of Appeals.
But Dan Ranson, the attorney who represented the state funeral directors’ association when they pushed for the burial insurance legislation, said that was no power grab. Ranson said great care was taken with the 2004 legislation – to make the law clearer and to keep people from being surprised or misled.
“Usually what happens is you go to bury a loved one, you look at the policy and you’re already distraught,” he said. “You go to the funeral home, present it to them and you’re focusing on the description of the funeral and that caused a lot of consternation and concern for people. And that’s one reason the Legislature told the task force (in 2004) to get to the bottom of it and find out what people were actually entitled to.”
Ranson said there were hearings at the Capitol, with some people testifying that they believed they should get the funeral described, and others saying they understood they only got the face value. In the end, the legislators determined that language added to the law in 1948, which required the policies to state both the service to be provided and the face value, was intended to limit the benefit to the face value amount.
It just needed to be clarified, Ranson said.
Even after the law was changed, several funeral homes continued to honor the exact funerals and ancillary services described in the policies – and a few apparently still do, for fear they will be seen as villains if they don’t.
But after a funeral home won a 2007 Supreme Court case in which the constitutionality of the law was challenged, many of the big area funeral homes announced that they, too, would only honor the policies at face value.
Some of the companies, like Schoen Funeral Home, took out ads in the newspapers notifying policyholders of the change. Schoen’s parent company, Service Corporation International of Houston, pointed to the Supreme Court decision in Sims v. Mulhearn Funeral Home as proof that the 2004 law was on solid ground.
But Ohrabka has serious concerns about that, and an insurance law instructor we spoke to thinks she would have a pretty good argument if she were to challenge the law in court.
When Ohrabka started inquiring, Schoen Funeral Home told her it won’t provide the simple, bare-bones funeral service detailed in her Jacob Schoen and Son Insurance policy, even though they honored the exact same policy when her brother died in 1999.
“Now Schoen’s is telling me when I call them, they tell me, ‘Oh, we don’t fool with those policies anymore. They’ve been sold to Mothe’s.’ So, I called Mothe’s funeral parlor and tried to talk to people. They got very indignant with me and told me, ‘Well, look, that’s the law. And that’s just the way it is. It’s already went to the Legislature and all you’re going to get is the $200.’”
But insurance law instructor Mary Dumestre said the funeral homes can’t use the Sims v. Mulhearn case to prove the law is constitutional. She said the Supreme Court never ruled on the validity of the law because the policy in question in that particular case was not as ambiguous as Ohrabka’s.
In the Sims case, the policy said the deceased would get service benefits “in the face amount shown.” In fact, the court said the intent of the policy was so clear to the insured that he bought a second policy to increase its face value.
Ohrabka’s policy, on the other hand, says she gets the service outlined “or, otherwise, $200 allowance on any other more expensive funeral service.”
“I did not see in the policy you gave me (Ohrabka’s) the kind of language that would allow the funeral home to say, ‘No, you only get the face value,’” said Dumestre, an attorney at Stone Pigman Walther Wittman who teaches insurance law at Loyola University Law School.
In fact, because Schoen honored the same policy for Ohrabka’s brother, she could argue that she has a reasonable expectation that she would, therefore, receive the same benefits, Dumestre said.
And that could give Ohrabka a far stronger case than Sims had if she wanted to challenge the law, Dumestre said.
“If you have an ambiguity where you have one reasonable interpretation and another reasonable interpretation, the tie goes to the insured,” she said.
When we asked Service Corporation International about Dumestre’s findings, they declined to comment, saying their statements in 2007 were sufficient to explain their position. Mothe Life Insurance also declined to comment.
Dumestre warned there’s no simple answer to the lingering questions about burial polcies because few policies use the exact same language. For example, we found a line in Melancon’s policy (link: Mothe’s policy.pdf) with Mothe that gave the funeral home the power to grant a cash settlement rather than the funeral service if it considered providing the service to be “impractical… for any reason.”
Ohrabka’s Schoen policy didn’t appear to give the insurer that “out.”
Ranson said there may be another problem. Half a century ago, salesmen hawked these burial policies and drove door-to-door to collect weekly premium payments, and Ranson said that it was hard to control exactly how these salesmen portrayed the benefits guaranteed by the policies.
“Well, we don’t know what was told to people and that’s always the problem,” he said. “But let me just say this: The act that you’re talking about, the 2004 act, says that if something was misrepresented to someone that those rights are reserved.”
In the end, it’s clear the policies had become bad business for the funeral homes. Once upon a time, policyholders were fighting to get the face value of their policies because the funerals ended up costing less. But by the 1980s, funeral costs had skyrocketed, well beyond the $2,500 limit placed on all insurance policies. In 1997, companies were legally banned from writing any more of the policies.
The insurance companies didn’t have sufficient reserves, he said. And many of the funeral homes that had once been the designated providers for their insurance arms had broken away completely. The funeral homes were not at all interested in providing the $2,000-$3,000 funerals promised in the policies if the insurance companies were only willing to pay a few hundred dollars for them.
“The insurance commissioner‘s office said that if these insurance companies had to pay the value of the funerals as opposed to what the premiums were charged and reserves were set,” Ranson said. “These companies would become insolvent and what would end up happening is these people probably wouldn’t even get the face value of their policies because they would be insolvent.”