Maryland Attorney General Opinion 98 OAG 003

MORTICIANS

HEALTH OCCUPATIONS – MORTICIANS – PRICE PROVISIONS

OF MONEY-TRUSTED PRE-NEED FUNERAL CONTRACTS

MUST BE GUARANTEED

March 1, 2013

The Honorable Wade Kach

Maryland House of Delegates

On behalf of the State Board of Morticians and Funeral

Directors (“the Board”), you have asked for our opinion as to

whether Maryland law permits a licensed mortician or funeral

director to enter into money-trusted pre-need funeral contracts in

which the price of some of the goods or services agreed upon is

not guaranteed. In a money-trusted pre-need funeral contract, the

consumer purchases funeral goods (e.g., a casket) and services

(e.g., embalming) for herself or another beneficiary ahead of time

and at then-prevailing market prices. You have explained that

such contracts often contain non-guaranteed price terms and that

funeral homes often ask the surviving relatives of the deceased to

“make up the difference” between the contract price and the

market price at the time the contracted-for goods and services are

actually provided. You have also explained that some uncertainty

exists among members of the funeral industry as to whether such

contracts are permissible under Maryland law.

In our opinion, the plain language of the statute—§ 7-405 of

the Health Occupations Article—requires that money-trusted pre-

need contracts include the “total price” of the services and

merchandise agreed upon, which we interpret to mean that the

price terms of the contract must be guaranteed. A pre-need

contract may include estimated prices for those goods and

services reasonably expected to be required at the time of need

but not included under the contract, but the licensed mortician or

funeral director may not accept pre-payment for such non-

included goods and services. This interpretation finds support in

the statutory scheme and legislative history, as well as in

principles of statutory construction that direct us to read the

statute in a way that furthers its consumer protection purpose.

3

4 [98 Op. Att’y

I

Background

Pre-Need Funeral Contracts

A pre-need funeral contract involves the purchase of funeral-

related goods and services prior to the death of the beneficiary,

who typically is the buyer or a family member or loved one of the

buyer.1 The buyer pays for the goods and services based on the

prices in effect at the time the contract is entered into, and the

seller agrees to provide the agreed-upon goods and services when

the beneficiary dies. The buyer may fund the contract with cash,

in which case the purchase money is placed in a trust to be paid to

the seller at the beneficiary’s death, or with a life insurance

policy, in which case the benefits of the policy are assigned to the

seller.

A pre-need contract provides several potential benefits to the

buyer. It gives the buyer a greater advance role in determining

the types of funeral services that will ultimately be provided to

memorialize the beneficiary. It also gives the buyer the

opportunity to purchase those services at his or her leisure, with

time to compare prices at different funeral homes. Further, pre-

purchasing funeral arrangements can save the beneficiary’s

survivors the expense and inconvenience of making funeral

arrangements at a difficult time. Finally, in certain jurisdictions—

and whether Maryland is one of them is central to this opinion—

the pre-need contract allows the buyer to lock in current market

prices as a way to protect against inflation, much as college pre-

paid tuition plans allow parents to lock in today’s tuition rates.

1

Three housekeeping items: First, we will use the term “buyer” to

refer to the consumer who enters into a pre-need contract, “seller” to

refer to the licensed funeral director or mortician who agrees to provide

funeral goods and services, and “beneficiary” to refer to the person

whose funeral is arranged pursuant to the contract. Second, although

the General Assembly uses the spelling “preneed” in enactments

addressing subjects other than mortuary practices, it uses the term “pre-

need” in the Maryland Morticians and Funeral Directors Act. As we

have previously, see 80 Opinions of the Attorney General 188, 193 n.3

(1995), we will use the spelling “pre-need” here. Third, except as

otherwise noted, all statutory citations in this opinion refer to Title 7 of

the Health Occupations Article of the Annotated Code of Maryland

(2009 Repl. Vol., 2012 Supp.).

Gen. 3] 5

For the seller, the pre-need contract allows the funeral home

to secure a more stable expectation of future business, which can

aid long-term business planning. The pre-need contract also

guarantees the funeral home full payment for services to be

rendered at the time services are rendered, which also provides

greater stability and financial predictability. Finally, depending

on state law, the pre-need contract can offer the seller operating

capital, if the funeral director is allowed to hold and use a certain

percentage of the purchase price, and the prospect of greater

profits, if the interest earned on the purchase price increases at a

rate greater than the cost of funeral expenses.

The practice of pre-need funeral planning dates back to at

least the 1930s, when burial associations began selling “burial

certificate plans.” The idea spread to the funeral industry in the

1950s, when funeral directors began selling pre-need funeral

arrangements in the United States. See Sandra B. Eskin, AARP

Pub. Policy Inst., Preneed Funeral and Burial Agreements: A

Summary of State Statutes 3 (1999), http://assets.aarp.org/

rgcenter/consume/d17093_preneed.pdf (last visited Feb. 23,

2013). Licensed funeral directors and morticians in Maryland

have been offering pre-need funeral contracts for decades. See

Undertakers Fight Cemeterians: Each Group Is Backing A

Different Funeral Fraud Bill, Baltimore Sun, March 10, 1967, at

C12 (describing testimony of industry representatives before

Senate Economic Affairs Committee). The prevalence of pre-

need contracts has increased over the past fifty years as the

population has aged, with recent industry estimates putting the

total amount invested in pre-need contracts at $35 billion

nationwide. U.S. Gov’t Accountability Office, GAO-12-65,

Death Services: State Regulation of the Death Care Industry

Varies and Officials Have Mixed Views on Need for Further

Federal Involvement 52 (2011) (“GAO Report”) (available at

http://www.gao.gov/assets/590/586972.pdf (last visited Feb. 27,

2013)).

The Regulation of Pre-Need Funeral Contracts

With the growth of pre-need funeral planning have come

fraud warnings and consumer advisories about the risks of pre-

need contracts. See, e.g., GAO Report at 52-55. Due to the

nature of pre-need contracts, there often is a long period of time

between bargaining and performance, which provides a “fertile

field for fraud.” State of Kansas, ex rel. Londerholm v. Anderson,

408 P.2d 864, 870 (Kan. 1965). Misappropriation of contract

funds may not become apparent until years later, when the goods

6 [98 Op. Att’y

and services are required. See Eskin at 3. It is also often difficult

to determine whether the contract is performed in a manner that

fulfills the parties’ expectations in those instances where the

buyer is also the beneficiary and, thus, is deceased at the time of

performance. Id. And “pre[-]need agreements are becoming

increasingly complex, involving more decisions and more

potential for fraudulent activity.” Id. at 4. Journalists, consumer

advocates, and government agencies all advise potential buyers to

consider carefully before making pre-need arrangements. See,

e.g., Anne Tergesen, When Prepaid Funeral Plans Are Wealth

Killers, Wall St. Journal, May 22, 2010 (available from

http://online.wsj.com (search “prepaid funeral plans”); Funeral

Consumers Alliance, The Pitfalls of Preneed,

http://www.funerals.org/faq/198-preneedpitfalls (last visited Feb.

27, 2013); Fed. Trade Comm’n, Funerals: A Consumer Guide

(available at http://www.consumer.ftc.gov/articles/pdf-0056-

funerals.pdf (last visited Feb. 28, 2013)).

Because of the risk of fraud, it appears that all fifty states

regulate pre-need funeral contracts in some manner. Eskin at 3.2

Although state regulation of pre-need contracts varies in many

significant respects, most regulatory regimes include provisions

governing the disclosure of certain contract terms and the

management of contract funds held in trust prior to performance.

Many states also afford consumers the right to terminate the

contract and re-direct the contract funds to another funeral

home—referred to as “portability.” GAO Report at 48-50.

At the federal level, the Federal Trade Commission (“FTC”)

has enacted regulations that require various disclosures to the

buyer. The funeral home must provide a “general price list” of

the goods and services that it offers, must make specific written

disclosures about the funeral process, and is specifically

prohibited from making certain misrepresentations. See generally

16 C.F.R. Part 453. For example, FTC rules make it a deceptive

trade practice to “[r]epresent that state or local law requires that a

deceased person be embalmed when such is not the case,” 16

C.F.R. § 453.3(a)(1)(i), or to “[c]ondition the furnishing of any

funeral good or funeral service . . . upon the purchase of any other

funeral good or funeral service.” 16 C.F.R. § 453.4(b)(1)(i).

2

Eskin, writing in 1999, identified Alabama as the only state that

did not regulate pre-need funeral contracts, but it has since enacted

legislation that does so. See 2002 Ala. Acts 74 (codified at Ala. Code

§ 27-17A-33 (2012)).

Gen. 3] 7

Despite these state and federal regulatory efforts, the GAO

reports that the pre-need segment of the industry has “come under

increasing scrutiny in recent years because of various allegations

of fraud and mismanagement of pre-need funds.” GAO Report at

55. In one instance, the new owners of a Tennessee funeral home

refused to honor existing pre-need contracts and required the

survivors to pay an additional $4,000 for the agreed-upon goods

and services. See In re Forest Hill Funeral Home & Mem. Park -

East, 364 B.R. 808, 815 (Bankr. E.D. Okla. 2007). A subsequent

prosecution revealed that the owner of the funeral home had

diverted millions of dollars from pre-need funeral trust accounts

and had used the money to purchase shares in hedge funds and to

finance the operations of another company in which he held an

interest. Id. at 812-13; see generally GAO Report at 55-60

(describing Forest Hill and other civil and criminal fraud suits).

Maryland appears to have experienced isolated instances of fraud

as well, including a March 2007 federal grand jury indictment of

the owner-operator of a Baltimore funeral home for allegedly

defrauding Maryland consumers of $525,000 in pre-paid funeral

expense accounts. Md. Dep’t of Legis. Services, Office of Policy

Analysis, Sunset Review: Evaluation of the State Board of

Morticians and Funeral Directors at 21-22 (Oct. 2007).

Maryland Law

Maryland first enacted legislation pertaining to pre-need

funeral contracts in 1969. See 1969 Md. Laws, ch. 684. The

1969 enactment contained many of the same provisions that exist

under current law. See Md. Ann. Code art. 43, § 366A (1965

Repl. Vol., 1969 Cum. Supp.).3 Those provisions now define a

pre-need funeral contract as “an agreement between a buyer and a

licensed funeral director, licensed mortician, or surviving spouse4

3

In 1981, the law was re-codified into the Health Occupations

Article (“HO”), see 1981 Md. Laws, ch. 8, and in 1992 it was re-

numbered at its current location within HO § 7-405, see 1992 Md.

Laws, ch. 155. In 1999, the law was expanded to authorize the use of

insurance proceeds to fund pre-need contracts. See 1999 Md. Laws, ch.

578; see generally 80 Opinions of the Attorney General 188 (1995)

(describing the history of how Maryland has regulated pre-need

contracts for funeral services and burial services).

4

A surviving spouse of a licensed mortician may obtain a license

to continue the business under the supervision of another licensed

mortician. HO § 7-308; 1981 Md. Laws, ch. 184. As we have

previously observed, the availability of a surviving spouse license

(continued. . . .)

8 [98 Op. Att’y

to provide any goods or services purchased prior to the time of

death.” HO § 7-101(v). Two types of pre-need funeral contracts

are relevant here: money-trusted and insurance-funded. In a

money-trusted pre-need contract, the buyer selects certain goods

and services and pre-pays the “total price” of those goods and

services based on the prices then in effect.5 The money that the

buyer pays under the contract must be deposited into a federally-

insured, interest-bearing trust or escrow account. HO § 7-

405(d)(2). The only exception to the trusting requirement allows

the seller to retain for its own use 20 percent of the selling price

of the casket or casket vault. HO § 7-405(d)(1)(ii)1. The money

in the account may not be withdrawn by the seller prior to

performance and must be refunded to the buyer upon written

demand at any point prior to the seller’s performance of the

contract.6 The interest or dividends generated on the account

“recognizes and preserves the value to a mortician’s family of the

funeral home as a going concern” and “affords the community a

measure of continuity in the operation of the funeral home by one

presumably familiar with the business.” 72 Opinions of the Attorney

General 141, 145-46 (1987).

5

Although the contract must state the “total price” of the agreed-

upon goods and services, the statute does not require that the price be

paid at one time. Sellers often allow buyers to pay in installments, but

with interest. See S.B. 578, 1999 Leg., Reg. Sess., Hearing Before the

Senate Finance Comm. (March 2, 1999) (written testimony of Sen.

Delores G. Kelley). If the beneficiary dies before the entire contract

amount has been paid, the seller may consider the contract void, in

which case the beneficiary’s heirs are entitled to a refund of “all

payments and interest held for the buyer.” HO § 7-405(e)(3)(iv); see

also infra n.6 (describing refund provisions).

6

The statute allows the buyer to terminate the contract at any time

by demanding in writing “a refund of all payments made,” HO § 7-

405(e)(3)(i), at which point the seller must refund “all payments and

interest held for the buyer.” HO § 7-405(e)(3); see also COMAR

10.29.06.06C. Although 20 percent of the purchase price of the casket

is not deposited into the trust account and is, therefore, arguably not

“held for the buyer,” it is our understanding that the Board interprets

the statute and regulations such that all of the payments made under a

pre-need contract are “held for the buyer” in the sense that they must be

put toward the cost of the funeral services ultimately provided. Under

the Board’s interpretation of the statute and regulations it administers—

an interpretation that is entitled to “considerable weight,” Motor

Vehicle Admin. v. Carpenter, 424 Md. 401, 413 (2012) (quoting

Maryland Aviation Admin. v. Noland, 386 Md. 556, 571-72 (2005))—

(continued. . . .)

Gen. 3] 9

“belong to” the buyer until the beneficiary dies and the agreed-

upon goods and services have been provided, at which point the

seller may withdraw the money from the account and keep “any

interest or dividends earned.” HO § 7-405(d)(4)(ii).

An insurance-funded pre-need contract provides for the same

services as a money-trusted contract but is funded by assigning to

the seller the benefits of a life insurance policy or annuity

contract. See generally HO § 7-405(f). As with a money-trusted

contract, the buyer may unilaterally terminate an insurance-

funded contract at any time, here by revoking the assignment of

benefits. HO § 7-405(f)(3)(i)2, (f)(3)(ii). Unlike a money-trusted

contract, however, an insurance-funded contract does not entitle

the buyer to a refund of the purchase price of the insurance policy

in the event the buyer revokes the assignment of benefits. Rather,

the insurance policy remains in place and is governed by

insurance law, not the provisions of § 7-405. HO § 7-

405(f)(3)(iii)2.7 Another significant difference between money-

trusted and insurance-funded pre-need contracts is that, under an

insurance-funded contract, if the benefit amount under the

insurance policy exceeds the “total price” of the funeral goods

and services “as determined at the time of death of the insured,”

the excess benefits “are paid to the beneficiary under the life

insurance policy or annuity contract.” HO § 7-405(f)(3)(i)4.8

the buyer is entitled to a refund of all payments made under the

contract.

7

The buyer who wishes to terminate the underlying life insurance

policy may be able to surrender the policy, but likely will receive in

return something less than its face value. See National Funeral

Directors Association, Model Consumer Protection Guidelines for

State Preneed Funeral Statutes at 4 (as amended Oct. 6, 2007)

(available at http://www.nfda.org/additional-tools-preneed/258-nfda-

model-consumer-protection-guidelines-for-state-preneed-funeral-

statutes.html (last visited Feb. 27, 2013)).

8

Maryland law provides for a third type of pre-need contract,

which is also money-trusted, but involves the formation of an

irrevocable trust to hold any portion of the contract amount until it is

needed to pay for funeral goods and services upon the beneficiary’s

death. The formation of an irrevocable trust is allowed “only for the

purpose of entitling the buyer to be eligible for any current Social

Security benefits or for any benefits under any other plan that restricts

eligibility to those with limited assets.” HO § 7-405(e)(4)(i). Unlike

ordinary money-trusted pre-need contracts, the use of an irrevocable

(continued. . . .)

10 [98 Op. Att’y

As you state in your letter, it is a common practice within the

funeral industry to include provisions in money-trusted pre-need

contracts that require the surviving family members of the

deceased to “make up the difference” between the contract price

of the agreed-upon goods and services and the price of the goods

and services at the time of death. Such contracts are known

within the industry as “non-guaranteed contracts.” See Tergesen

at 1. The question you have asked is whether sellers may include

non-guaranteed price provisions in money-trusted pre-need

contracts or must instead accept the contract price as payment in

full.

II

Analysis

We are called upon here to construe the provisions of § 7-405

of the Health Occupations Article, mindful that “[t]he ultimate

goal in construing and applying a statute is to ‘discern the actual

intent of the [L]egislature in enacting it.’” Ali v. CIT Tech. Fin.

Servs., 416 Md. 249, 260 (2010) (quoting Chow v. State, 393 Md.

431, 443-44 (2006)). When the Legislature’s intent is plain from

the language used, we “need not delve deeper.” Ali, 416 Md. at

260; see also Bourgeois v. Live Nation Entm’t, —Md.—, 2013

Md. LEXIS 10, 16 (Jan. 18, 2013) (“If the language is clear and

unambiguous, we need go no further.”). However, even when the

statute’s meaning may appear plain, we may “look at the purpose

of the statute and compare the result obtained by use of its plain

language with that which results when the purpose of the statute is

taken into account.” Kramer v. Liberty Prop. Trust, 408 Md. 1,

19 (2009). If, after considering the statutory language in its

proper context, “we conclude that the statute is subject to more

than one interpretation or that relevant terms are otherwise

ambiguous, we endeavor to resolve the ambiguity by looking to

the statute’s legislative history, purpose, and structure, as well as

to case law.” Bourgeois, 2013 Md. LEXIS at 17. Legislative

history “may be considered in an effort both to confirm what

appears to be a clear intent from the language itself and to discern

legislative intent when that intent is not entirely clear from the

statutory language.” Id. We may also look to the interpretation

of a statute by the agency that administers it, as courts will accord

a degree of deference to the agency’s interpretation. Dep’t of

trust means that the buyer “may not receive a refund of any payments

made for the pre-need burial contract.” HO § 7-405(e)(4)(ii).

Gen. 3] 11

Human Res. v. Hayward, 426 Md. 638, 650 (2012); Marzullo v.

Kahl, 366 Md. 158, 172 (2001).

A. Section 7-405 of the Health Occupations Article Requires

that the Pre-Need Contract Reflect the “Total Price” of the

Agreed-Upon Goods and Services

Section 7-405 of the Health Occupations Article governs the

form and content of pre-need contracts. It expressly provides that

money-trusted pre-need contracts must contain a “description of

any service or merchandise to be provided under the pre-need

contract,” HO § 7-405(c)(1)(ii), and must disclose “[t]he total

price of the services and merchandise agreed on.” HO § 7-

405(c)(1)(iv). Non-guaranteed price terms, by definition, do not

disclose the “total price”; assuming typical inflationary pressures,

they disclose only a portion of the price, with the balance to be

paid at the time of the beneficiary’s death, when the seller asks

the survivors to “make up the difference” between the contract

price and the prevailing market price. Because non-guaranteed

contract terms do not contain the “total price” of the goods and

services agreed upon, we believe the plain language of § 7-405

prohibits their inclusion in money-trusted pre-need contracts.

Our conclusion finds support in the different manner in which

the statute addresses insurance-funded pre-need contracts.

Although both types of pre-need contract must include the “total

price” as a contract term, see HO § 7-405(c)(1)(iv), see also HO

§ 7-405(f)(3)(iii)2 (exempting insurance-funded contracts from

subsections (d) and (e), but not (c)), the statute specifies that, for

purposes of determining the amount of refund potentially due the

buyer,

[a]ny benefits payable under the life

insurance policy or annuity contract in excess

of the amount necessary to pay the total

price, as determined at the time of death of

the insured, of the services and merchandise

agreed on in the pre-need contract are paid to

the beneficiary under the life insurance

policy or annuity contract.

HO § 7-405(f)(3)(i)4 (emphasis added). This provision, added to

the statute in 1999, expressly applies only to insurance-funded

pre-need contracts. 1999 Md. Laws, ch. 578. The Legislature did

not include a similar provision within the portion of the statute

governing money-trusted pre-need contracts. Had it done so, the

12 [98 Op. Att’y

statute would fairly clearly have allowed non-guaranteed price

provisions because the total price of the contract would consist of

the price paid at the time of contract formation, supplemented by

the balance due “at the time of death.”

As a matter of statutory construction, we presume that the

Legislature’s decision to include the phrase “at the time of death”

in the provisions governing insurance-funded contracts, but not

money-trusted contracts, was intentional. The Latin maxim is

“expressio (or inclusio) unius est exclusio alterius, or the

expression of one thing is the exclusion of another.” Potomac

Abatement, Inc. v. Sanchez, 424 Md. 701, 712 (2012); see 87

Opinions of the Attorney General 66, 74 (2002); see also Schisler

v. State, 394 Md. 519, 594-95 (2006) (express provision for

legislative approval of executive power to terminate executive

officers in § 10 of the Constitution suggests that its absence in

§ 15 was intentional); Chow, 393 Md. at 457-58 (Legislature’s

use of the term “loan” within statute regulating the registration of

machine guns suggests that its failure to include term within

subsequent statute regulating handguns was deliberate); Mossburg

v. Montgomery County, 329 Md. 494, 505 (1993) (“This court has

regularly held that where the Legislature in a statute expressly

authorizes a particular action under certain circumstances, the

statute ordinarily should be construed as not allowing the action

under other circumstances.”).9

Other aspects of the statutory scheme compel the same

conclusion we reach through application of the plain language of

9

We note that the statutory provisions governing pre-need burial

contracts use somewhat different language to describe the price

provisions of such contracts. Where pre-need funeral contracts must

include the “total price of the services and merchandise agreed upon,”

HO § 7-405(c)(1)(iv), pre-need burial contracts must contain “the

amount of the buyer’s financial obligation.” Md. Code Ann., Bus. Reg.

§ 5-704(a)(5). We believe the two provisions are capable of equivalent

construction and, thus, ascribe little substantive significance to the

different terms employed. Bus. Reg. § 5-704(a)(5). But even if the

choice of different terms could be seen as evidence of legislative intent

that the two provisions be interpreted differently, we conclude that the

different language employed within the Morticians’ and Funeral

Directors Act reveals more about legislative intent than that contained

in a different Article, and that the contrast between the price provisions

governing insurance-funded and money-trusted contracts makes clear

that money-trusted contracts must contain the “total price” of the

agreed-upon services and merchandise without mark-up at the time of

death.

Gen. 3] 13

the statute and interpretive canons. Disclosure of the principal

contract terms is a central provision of the Maryland statute, just

as it is central to the federal regulations that govern pre-need

contracts generally. See HO § 7-405(c)(1); see generally 16

C.F.R. Part 453. As we interpret the “total price” requirement of

§ 7-405(c), buyers are able to ascertain their entire financial

responsibility at the time they enter into the pre-need contract,

regardless of how the contract is funded. Under money-trusted

contracts, the buyer is responsible for the “total price” stated in

the contract; under insurance-funded contracts, the buyer is

responsible for the face value of the insurance policy, since the

seller is required to “accept the benefits payable under the life

insurance policy or annuity contract as payment in full.” HO § 7-

405(f)(3)(i)3. Either way, the buyer enters into the contract

knowing that her survivors will not have to pay more than the

“total price” reflected in the contract.

It is also important here to recognize that, even where the

statute allows for the price in an insurance-funded pre-need

contract to be determined “at the time of death of the

beneficiary,” it does so only for the purpose of determining

whether money should be refunded to the beneficiary. See HO

§ 7-405(f)(3)(i)4 (“Any benefits payable under the life insurance

policy or annuity contract in excess of the amount necessary to

pay the total price, as determined at the time of death of the

insured, . . . are paid to the beneficiary. . . .”). Thus, while the

beneficiary might or might not receive excess money from the

seller, under no circumstances does the price-at-time-of-death

provision operate to require the survivors to pay more. In this

respect, then, the interpretation we reach achieves what we see as

a critical consumer protection component of the statute, namely,

that a buyer knows up front what his or her financial outlay will

be.

B. Legislative Purpose and History Support the Conclusion

that the Price Provisions of Pre-Need Funeral Contracts

Must be Guaranteed

The General Assembly’s stated purpose for enacting the

predecessor to § 7-405 was to “regulate and restrict” pre-need

funeral contracts, 1969 Md. Laws, ch. 224 at 1522, and a previous

version of the statute was reported as “ostensibly designed to

protect the deceased and bereaved from burial fraud.”

Undertakers Fight Cemeterians, Baltimore Sun, March 10, 1967,

at C12; see also 80 Opinions of the Attorney General at 189 (“The

Maryland Morticians Act carefully regulates pre-need

14 [98 Op. Att’y

contracts.”). It is fairly self-evident that the Maryland pre-need

statute, as with similar statutes in other states, constitutes remedial

legislation intended to protect consumers. See Letter from Jack

Schwartz and Harry Matz, Assistant Attorneys General, to Robert

C. Adams, President, Board of Morticians at 4, 5 (Feb. 16, 1990)

(Maryland pre-need statute is designed to “protect[] the public”

and “consumers”); see also, e.g., Guardian Plans v. Division of

Ins., 793 P.2d 615 (Colo. Ct. App. 1990) (“The pre-need statutes

were enacted to protect the public from unconscionable dealings

regarding the sale of pre-need contracts.”); State ex rel. McGraw

v. Combs Servs., 526 S.E.2d 34, 41 (W.Va. 1999) (stating that the

“Legislature’s desire to protect purchasers of pre[-]need funeral

contracts from unscrupulous purveyors thereof is further

evidenced by its establishment of the Pre[-]need Guarantee Fund,

which ensures that consumers receive the benefit of their

contracted-for bargain”); compare H.B. 1090, 2008 Leg., Reg.

Sess., Revised Fiscal and Policy Note (enactment of Family

Security Trust Fund—now codified at HO §§ 7-4A-01 to 7-4A-

13—allows for claims when “pre[-]need money is obtained from

a person by theft, embezzlement, false pretenses, or forgery”).

Although little legislative history surrounds the 1969

enactment of Maryland’s pre-need statute, hearing testimony on

the 1999 amendments that authorized the use of insurance-funded

pre-need contracts reflects the understanding—held by legislators

and industry representatives alike—that one of the principal

consumer benefits of pre-need contracts is that they allow the

buyer to “lock in” the contract price. Senator Della repeatedly

asked whether S.B. 578, if adopted, would allow buyers to “lock[]

in” the purchase price under an insurance-funded pre-need

contract in the same manner as they could under the money-

trusted option then available. S.B. 578, 1999 Leg., Reg. Sess.,

Hearing Before Senate Finance Comm. (audio recording, Mar. 2,

1999) (statement of Sen. Della begins at the 37:50 time mark); see

also id. at 39:00 (asking whether consumer would be able to lock

in current prices “regardless of what the cost might be 20 years

down the road”). David Funk, the representative of an insurance

company planning to enter the market, replied in the affirmative,

id. at 38:05, as did all of the other witnesses who addressed the

issue. Among them were John P. Chaplin—then President of the

Board of Morticians—who testified that pre-need contracts allow

the buyer to “lock in the price of the funeral and not have to pay

any more for it,” id. at 6:15, and Erich W. March—representing

the Funeral Directors Association, and a former President of the

Board of Morticians—who testified that, as a funeral director, “if

[the contract price is] less than the funeral in the future, I’ve

Gen. 3] 15

guaranteed the contract; I’m the loser.” Id. at 51:35.

Mr. March’s comments on behalf of the Funeral Directors

Association are consistent with statements the Association has

made in connection with a Board-approved online course

designed to educate morticians about the basics of the Maryland

pre-need statute. In those course materials the Association

advises morticians, “Once a pre-need contract has been funded

and signed, the prices on the contract are guaranteed.” Maryland

State Funeral Directors Assn., How Much Do You Know About

Maryland’s Pre-need Statute? at 5, http://www.msfda.net/

sitemaker/sites/Maryla1/images/WebsitePreneedMDStatuteOnlin

eCourse01-2010.pdf (last visited Feb. 27, 2013). These statements

confirm what the language of the statute otherwise makes plain:

The requirement that money-trusted pre-need contracts reflect the

“total price” of agreed-upon goods and services does not allow for

sellers to ask surviving family members to make up the difference

between the contract price and the market price at the time the

services are rendered.

C. The Board’s Administrative Construction of the Statute is

Consistent With the Conclusion that the Seller May Not

Charge Survivors More at the Time of Death

The Board’s regulations do not elaborate on the “total price”

requirement. Instead, the regulations provide only that “[t]he

seller shall perform the contract according to the contract’s terms

and at the agreed upon price”—a regulatory construction that we

believe sheds little light on the meaning of the statutory phrase.

There is, however, one way in which the regulations suggest

strongly that the price terms of money-trusted pre-need contracts

must be guaranteed. Generally, the Board re-states the statutory

list of circumstances that provide grounds for termination of the

pre-need contract, see HO § 7-405(e)(3), but it has added

language to the third such circumstance: “The seller is unable to

perform under the terms and conditions of the pre[-] need contract

for reasons other than an increase in the cost of goods and

services . . . .” COMAR 10.29.06.06C(3) (emphasis added).

The Board’s addition of the italicized language makes clear

that a seller may not terminate a pre-need contract on the grounds

that the prevailing market price has outstripped the contract

price—a circumstance that would be of concern to the seller

principally if the contract price is guaranteed. If the price were

not guaranteed, and the seller were able to collect the prevailing

rates at the time of death, the seller would have no need to

terminate the contract because of “an increase in the cost of goods

16 [98 Op. Att’y

and services,” and there would have been no need for the Board to

prohibit the practice. Nor can we discern the policy goals that

would be advanced by prohibiting the seller from terminating the

pre-need contract on price grounds prior to the beneficiary’s

death—as the Board’s regulations do—while allowing the seller

to do so afterwards. That would, we think, defeat a fundamental

purpose of the pre-need contract, which is to allow the buyer to

bind the seller and thereby obtain a measure of control over his or

her own funeral. And yet, that is precisely the scenario that

would arise if the seller were able to require the beneficiary’s

survivors to “make up the difference” or go elsewhere for funeral

services. Cf. Bourgeois, 2013 Md. LEXIS at 35-36 (concluding

that the addition of an “‘authorized service charge,” if allowed,

would “essentially eviscerate[]” the ordinance’s requirement that

the ticket not be sold for more than the “established price” printed

on it). Our interpretation thus accords with that of the Board.10

D. Allowing Non-Guaranteed Pre-Need Contracts Would Alter

the Economic Incentives of the Contracting Parties in a

Manner that is Inconsistent with the Consumer Protection

Purpose of the Statute

Our reading of the “total price” requirement also finds

support in the fact that it preserves what we perceive to be the

economic incentive structure embodied within the money-trusted

pre-need contract. Although buyers likely pre-plan funeral

arrangements primarily to spare their survivors inconvenience and

expense, money-trusted pre-need contracts also provide buyers a

10

We are aware that the Board has previously reviewed and

approved contract forms that include separate provisions for guaranteed

and non-guaranteed price terms. It is our understanding, though, that

the forms the Board approved were for insurance-funded pre-need

contracts, which, as discussed above, are subject to different “total

price” provisions. Given that the price of goods and services under

insurance-funded contracts is “determined at the time of death of the

insured,” HO § 7-405(f)(3)(i)4, the same concerns that weigh against

allowing non-guaranteed price terms in money-trusted pre-need

contracts do not necessarily apply to insurance-funded contracts. The

statute expressly provides, though, that the seller must “accept the

benefits payable under the life insurance policy or annuity contract as

payment in full for the services and merchandise agreed on in the pre-

need contract.” HO § 7-405(f)(3)(i)3 (emphasis added). Accordingly,

the seller may not require additional payment for the agreed-upon

goods and services, and may not retain any portion of the assigned

benefits that exceeds the total price of the goods and services “as

determined at the time of death of the insured.” HO § 7-405(f)(3)(i)4.

Gen. 3] 17

means of protection against the effect of inflation on the price of

funeral goods and services. By paying the “total price” for goods

and services at the time of contract, buyers lock in the price of

those goods and services at then-prevailing rates and eliminate

any uncertainty about the kind of funeral they could afford in the

event that costs have increased by the time of death. See, e.g.,

Coleman & Coleman Enters. v. Waller Funeral Home, 2012 Miss.

LEXIS 570, *3 (Nov. 15, 2012) (“The purpose of these pre[-]need

[funeral] contracts was to fix the price of funeral services and

merchandise, so the customer could avoid the risk of inflation.”);

Utah Funeral Dirs. & Embalmers Ass’n, v. Memorial Gardens of

the Valley, 408 P.2d 190, 195 (Utah 1965) (observing that, in

contrast to insurance, where the benefits paid out may far exceed

the premiums paid, in pre-need funeral contracts “the amount to

be paid on the contract is fixed by its terms” and “[t]he only

possible profit or benefits which could accrue to the purchasers

under these contracts would be a possible raise in the price of

such services specified after the contract was entered into”).

Sellers make the opposite calculation. Because, “[u]pon

performance of the contract, any interest or dividends earned by

the escrow or trust account belong to the seller,” HO § 7-

405(d)(4)(ii), the seller stands to profit whenever the amount of

money deposited in the trust or escrow account, including accrued

interest, exceeds the price of the agreed-upon goods and services

at the time of death.11

Allowing sellers to include non-guaranteed price terms within

money-trusted pre-need contracts would materially alter this

incentive structure in a way that insulates the funeral service

provider from all risk. If interest rates outstrip inflation, the seller

is entitled to keep the excess; that much is dictated by § 7-

405(d)(4)(ii). But if the inflation outstrips interest, the seller

would be able, under a non-guaranteed contract, to require family

11

We note also that sellers obtain other financial benefits from pre-

need contracts. Although a seller must place the vast majority of the

contract price into escrow and may not withdraw that money until the

beneficiary dies and the seller provides the agreed-upon services and

merchandise, HO § 7-405(e)(2), the seller is entitled to use as operating

capital 20 percent “of the selling price of a casket or casket vault under

the pre-need contract,” HO § 7-405(d)(1)(ii), which can amount to

hundreds of dollars in today’s market. See Sara J. Marsden, Points to

Consider When Buying a Funeral Casket, US Funerals Online,

http://www.us-funerals.com/caskets.html (last visited Feb. 27, 2013)

(cost of casket ranges from $1,000 to $3,000, with high-end models in

the tens of thousands of dollars).

18 [98 Op. Att’y

members to “make up the difference” between the contract price

and the price at the time of death. The buyer, by contrast, would

bear all of the risk associated with inflation.12

Allowing non-guaranteed price provisions would have other

anti-consumer effects that we believe the Legislature did not

intend. For example, one of the reasons why buyers enter into

pre-need contracts is to spare their loved ones the burden and

expense of having to arrange a funeral during a time of grief.

This important purpose of pre-need funeral planning would be

defeated, at least in part, if the seller may nevertheless require that

surviving family members “make up the difference” between the

contract price and the price at the time of death.13

We see nothing in the language of the statute or its legislative

history to suggest that the Legislature intended such anti-

consumer outcomes. In the absence of such intent, canons of

statutory construction require that we interpret § 7-405 “liberally

in order to promote its [consumer protection] purpose.”

Washington Home Remodelers v. State, 426 Md. 613, 630 (2012)

(noting that Consumer Protection Act, as remedial legislation,

requires liberal construction); see also Maryland Ins. Comm’r v.

Central Acceptance Corp., 424 Md. 1, 39 (2011). Reading § 7-

405 in a manner that would prohibit sellers from shifting the risk

of inflation entirely onto the buyer or his survivors advances that

purpose, is consistent with the available legislative history, and

gives effect to the plain language of the statute.

12

As one article explains, pre-need contracts typically involve a

trade-off: “With a so-called guaranteed plan, a funeral home promises

that if you pay today’s prices, it will provide the goods and services

you purchased, no matter how much prices rise. ‘Non-guaranteed’

plans offer no such protections. But if these accounts appreciate in

value, heirs get to keep the gains.” Tergesen at 1.

13

If the price difference were too great, the surviving family

members, through the “legal representative of the buyer,” HO § 7-

405(e)(3)(i), may be able to terminate the contract and receive a refund

of “all payments and interest held for the buyer,” HO § 7-405(e)(3), if

they do so before the seller actually provides the agreed-upon services

and merchandise. See HO § 7-405(e)(2)(i) (prohibiting seller from

withdrawing funds until contract is performed). We suspect, though,

that the prospect of having to make alternative funeral arrangements

under such trying circumstances would present a significant obstacle to

termination.

Gen. 3] 19

E. The Regulation of Pre-Need Funeral Contracts in Other

States

Although we have not completed a comprehensive survey of

state provisions, we recognize that our conclusion places

Maryland in the minority of states that prohibit non-guaranteed

pre-need contracts. Most states allow non-guaranteed provisions

in pre-need contracts, but do so expressly, with statutory or

regulatory language that requires the pre-need contract to disclose

whether a particular good or service is guaranteed. See, e.g., Va.

Code Ann. § 54.1-2820(A)(4) (2013) (prohibiting a pre-need

contract unless it “clearly discloses whether the price of the

supplies and services purchased is guaranteed”); Minn. Stat.

§ 149A.97.3a(3) (2012) (requiring that pre-need contract

“disclose[] clearly and conspicuously whether the prices of the

goods and services selected are guaranteed”); Tenn. Code Ann.

§ 62-5-406(b)(3) (2013) (pre-need contracts must “clearly identify

whether the contract is a guaranteed pre-need funeral contract or a

non-guaranteed pre-need funeral contract”); La. Rev. Stat. Ann.

§ 37:862(A)(11) (2012) (pre-need contracts must “specifically

identify which funeral goods and services are guaranteed funeral

goods and services”); Mich. Comp. Laws § 328.220 (2012) (“All

prepaid contracts provided for under this act shall be either a

nonguaranteed price contract or a guaranteed price contract and

shall be made and executed pursuant only to this act.”).

Maryland is not, however, alone in prohibiting non-

guaranteed price provisions. Utah does so, requiring that pre-

need contracts “clearly identify that the contract is a guaranteed

product contract,” Utah Code Ann. § 58-9-701(2)(c) (2012),

“wherein goods or services are selected which will be provided at

the time of need for the consideration specified in the contract

regardless of the market price at the time of need.” Utah Admin.

Code R156-9-102(3) (2013) (defining “guaranteed product

contract”). Arkansas does so too; “all contracts for sale of

prepaid funeral benefits shall provide that the seller shall furnish

to the buyer the merchandise and services as set forth in the

contract at the contract price, regardless of the cost of the

merchandise or services at the date of the beneficiary’s death.”

Ark. Code Ann. § 23-40-112(d)(1) (2012); see also Haw. Rev.

Stat. § 441-22.5(c) (2012) (“No mortuary, cemetery, or pre-need

funeral authority shall charge a price for the cemetery property,

interment, or funeral services, whether it be at-need or pre-need,

which is greater than the price on the itemized price list or

contract which the purchaser had signed . . . .”) (emphasis

20 [98 Op. Att’y

added). As with the states that allow non-guaranteed price terms,

though, the states that prohibit such terms generally do so

expressly.

Maryland and Nevada are the only two states that appear to

lie in the middle, with statutory provisions requiring that pre-need

contracts include the “total price” or the “purchase price,” but

without expressly permitting or prohibiting non-guaranteed price

provisions. See Nev. Rev. Stat. § 689.275(1)(c) (2012) (“All

forms for a prepaid contract offered or sold in this state must

contain . . . the purchase price of each item of supply or service

and how payable.”). Although we have found no Maryland or

Nevada cases construing the price provisions of their respective

state’s pre-need statutes, a Colorado case—Guardian Plans v.

Div. of Ins., 793 P.2d 615 (Colo. Ct. App. 1990)—construed an

analogous provision of Colorado law to reach the same

conclusion we reach here.

In Guardian Plans, the Colorado Court of Appeals heard the

appeal of a funeral home that had its license suspended in part

because its pre-need contracts contained non-guaranteed price

terms. Id. at 616. The Division of Insurance had determined that

such terms violated Colorado’s pre-need statute because they did

not “set forth the purchase price and the terms under which it is to

be paid.” Id. at 618.14 The funeral home argued that “the

Division misconstrued and misapplied the pre-need statute by

requiring it to state a ‘fixed price’ or ‘purchase price’ for funeral

goods and services,” and that its contracts, which listed “a price

that is ‘subject to change from time to time,’” complied with the

statutory requirements. Id. at 617-18.

The court upheld the suspension. In reaching the conclusion

that non-guaranteed price provisions did not constitute a

“purchase price,” the Colorado Court of Appeals emphasized the

importance of the disclosure within the statutory scheme:

The pre-need statutes were enacted to protect

the public from unconscionable dealings

14

The Colorado statutory provision at issue in Guardian Plans—

Colo. Rev. Stat. § 10-15-109(1) (1987 Repl. Vol. 4A)—has since been

amended and recodified and now requires that pre-need contracts

“[s]pecify the services or merchandise, or both, to be provided, and

clearly indicate that the pre[-]need contract seller guarantees and fully

pays for each such service or merchandise, or both, when it is provided

. . . .” Colo. Rev. Stat. § 10-15-105(g) (2012).

Gen. 3] 21

regarding the sale of pre-need contracts. The

General Assembly has developed detailed

disclosure requirements designed to provide

meaningful protection to consumers.

Accordingly, listing a price that is “subject to

change” would render the statutory

disclosure requirement meaningless and

would provide the consumers with little

useful information about the pre-need

contract price.

Id. at 618. “Consequently,” the court concluded, “we agree with

the trial court’s judgment holding that the plaintiff sold funeral

goods and services on a pre-need basis without properly

disclosing the price of those goods and services as required by

statute.” Id.

We believe the same reasoning applies to Maryland’s pre-

need law, which similarly includes detailed disclosure

requirements concerning the types of goods and services to be

provided and the “total price” thereof. See HO § 7-405(c)(1).

The purpose of requiring the seller to disclose the “total price”

that the buyer will have to pay, it would seem, is to ensure against

the eventuality that generated this opinion, namely, that the

funeral home would seek to increase the contract price once the

beneficiary dies. Indeed, as discussed above, that practice is

precisely what led to one of the most widely-reported fraud

prosecutions involving pre-need contracts to date. See In re

Forest Hill, 364 B.R. at 815 (describing fraudulent practices of

Forest Hill, which refused to honor the terms of pre-need

contracts and imposed additional charges).

In fact, we believe that the “total price” requirement set forth

in § 7-405(c)(1)(iv) presents an easier case than the “purchase

price” language at issue in Guardian Plans. While a non-

guaranteed price may still plausibly qualify as the “purchase

price,” it cannot, by definition, disclose the total price of an

agreed-upon service or merchandise; it discloses only a portion

thereof, with the balance to be paid at the time of the beneficiary’s

death. We conclude, then, that Maryland law prohibits the

inclusion of non-guaranteed price terms within money-trusted

pre-need contracts.

This is not to say that the statute requires the seller to bind

itself to guaranteed price provisions for all of the funeral goods

and services expected to be necessary at the time of death. To the

22 [98 Op. Att’y

contrary, the statute expressly allows—actually, requires—sellers

to “[s]tate[] that all funeral costs may not be covered under the

pre-need contract,” HO § 7-405(c)(1)(iii)1, and to list in the pre-

need contract “all funeral goods and services that are reasonably

expected to be required at the time of need, but are not included in

the contract.” HO § 7-405(c)(1)(iii)2. Thus, if a seller does not

wish to run the risk that inflation will outstrip interest rates for

caskets, embalming, or other goods and services, it may simply

exclude those goods and services from the contract and inform the

buyer that they are excluded. But if the seller includes goods and

services in a money-trusted contract, and requires payment under

the contract for those goods and services, the contract price for

those goods and services must be guaranteed.

III

Conclusion

In our opinion, the requirement of § 7-405 of the Health

Occupations Article that money-trusted pre-need contracts

include the “total price” of the agreed-upon goods and services

means that the price terms of the contract must be guaranteed.

Although the contract may include estimated prices for the goods

and services that are not included under the contract, the licensed

mortician or funeral director may not accept pre-payment for such

goods and services.

Douglas F. Gansler

Attorney General

Adam D. Snyder*

Chief Counsel,

Opinions & Advice

* Linda Zang, a volunteer intern in the Opinions and Advice

Division, contributed substantially to the preparation of this

opinion.