H. B. 4509


(By Mr. Speaker, Mr. Chambers, and Delegates Leach,
Mezzatesta, Houvouras, Huntwork, Prezioso and Sorah)

[Introduced February 17, 1994; referred to the
Committee on the Judiciary.]



A BILL to amend and reenact sections two, four and nine, article five-b, chapter thirty-five of the code of West Virginia, one thousand nine hundred thirty-one, as amended; and to further amend said article by adding thereto four new sections, designated sections three-a, eight-a, twelve-a and nineteen, all relating to preneed cemetery contracts generally; requiring a certificate of authority and licenses to contract for preneed cemetery services; requiring renewal fees; prohibiting certain types of solicitation; authorizing the tax department to promulgate rules; requiring certain funds to be deposited in trust accounts within thirty days; providing for the disposition of trust proceeds; exempting vaults from the provisions of the article; requiring that funds in trust accounts be maintained in this state; allowing cancellation of contract by contract buyer; providing the authority to cancel; prohibiting certain acts; providing for disciplinary and revocation proceedings; giving the tax commissioner authority to issue penalties; and providing for treble damages and the payment of attorney fees to the prevailing party in certain civil actions.
Be it enacted by the Legislature of West Virginia:

That sections two, four and nine, article five-b, chapter thirty-five of the code of West Virginia, one thousand nine hundred thirty-one, as amended, be amended and reenacted; and that said article be further amended by adding thereto four new sections, designated sections three-a, eight-a, twelve-a and nineteen, all to read as follows:
ARTICLE 5B. PRENEED CEMETERY COMPANY PROPERTY, GOODS AND SERVICES; RELATED CONTRACTS.

§ 35-5B-2. Information filing; fees, compliance agent.

On or after the first day of July, one thousand nine hundred ninety-three, no person, partnership, firm or corporation may engage in the business of operating a cemetery company in this state without having first paid an annual registration obtained certificate of authority from the tax commissioner. fee established by the tax commissioner in an amount not to exceed four hundred dollars, and filing with the tax commissioner certain information which shall include the name and addresses of all officers, owners and directors of the cemetery company and the name of the designated compliance agent

Any person desiring to obtain a certificate of authority shall file with the tax department, upon forms provided by the department, a completed application, together with a one hundred dollar application fee for his or her original certificate of authority. The fee shall be payable to a special revenue account to be known as the "cemetery company account" for the purpose of administering the provisions of this article. The original application or a renewal application shall contain at least the following information:
(1) The name and address of each person owning ten percent or more interest in the applicant;
(2) The experience of the applicant;
(3) Such other information as the department may require to determine to its satisfaction that the applicant possesses the ability, experience, financial stability and integrity to deal in preneed cemetery contracts; and
(4) The types of preneed cemetery company contracts proposed to be written and an itemization of all outstanding preneed cemetery contracts.
Each certificate of authority holder shall renew its certificate of authority according to the schedule established by this article. The fee for renewal is one hundred dollars, payable to the "cemetery company account" established by this section.
No agent or employee of a contract seller may sell preneed cemetery company contracts in this state without first obtaining from the department a license for such purpose. The fee for such license and the annual renewal thereof is twenty-five dollars. These fees are payable to the "cemetery company account." The department may not issue a license without requiring an applicant for the license, or if the applicant is a corporation, its individual agents, to provide proof to warrant its issuance by presenting with the application affidavits from his employer stating that, to the employer's best information, knowledge and belief the applicant merits a license. The acts of the agent shall be considered acts of the employer.
The cemetery company shall notify the tax commissioner of any changes in the information required to be filed within ninety days of the date on which the change occurs. A new filing shall also be required if there is a change in the ownership of the cemetery company or if there is a change in the name of the compliance agent designated by the cemetery company. The cemetery company shall pay an additional fee as established by the commissioner in connection with the reporting of such changes, not to exceed one hundred dollars. There is hereby created in the state treasury a special account to be known as the "cemetery company account" into which all fees collected under this article shall be deposited: Provided, That amounts collected which are found from time to time to exceed funds needed for the purposes set forth in this article may be transferred to other accounts or funds and redesignated for other purposes by appropriation of the Legislature. Funds in this account shall be expended upon appropriation of the Legislature by the secretary of tax and revenue in connection with the administration of this article.
§ 35-5B-3a. Solicitation.

(a) Any contract seller or agent or employee or person acting in behalf of any such person may not:

(1) Directly or indirectly call upon individuals or persons in hospitals, rest homes, nursing homes or similar institutions for the purpose of soliciting cemetery company contracts or making funeral or final disposition arrangements without first having been specifically requested by such person to do so;
(2) Directly or indirectly employ any agent, assistant, employee, independent contracting person or any other person to call upon individuals or persons in hospitals, rest homes, nursing homes or similar institutions for the purpose of soliciting cemetery company contracts or making funeral or final disposition arrangements without first having been specifically requested by such person to do so;
(3) Solicit relatives of persons whose death is apparently pending or whose death has recently occurred for the purpose of providing funeral services, final disposition, burial or funeral goods for such person;
(4) Solicit or accept or pay any consideration for recommending or causing a dead human body to be provided funeral services and funeral and burial goods by specific persons, or the services of a specific crematory, mausoleum or cemetery except where such arrangement is the subject of a preneed cemetery company contract;
(5) Solicit by telephone call or by visit to a personal residence, unless such solicitation has been previously requested by the person solicited or by a family member residing at such residence.
(b) Notwithstanding any other provision of law to the contrary, nothing in this article shall be construed to restrict the right of a person to lawfully advertise, to use direct mail or otherwise communicate in a manner not within the above prohibition of solicitation or to solicit the business of anyone responding to such communication or otherwise initiating discussion of the goods or services being offered.
(c) Nothing herein shall be construed to prohibit general advertising.
(d) Anyone making a personal or written solicitation for a preneed cemetery company contract shall, at the very first instance, divulge the real reason for the contract or solicitation.
(e) The department may adopt rules regulating the solicitation of preneed cemetery company contracts by certificate holders or registrants to protect the public from solicitation practices which utilize undue influence or which take undue advantage of a person's ignorance or emotional vulnerability.
§ 35-5B-4. Deposit in preneed trust required; who may serve as trustee.

(a) Each cemetery company shall deposit into an interest bearing trust fund forty ninety percent of the receipts from the sale of property, goods or services purchased pursuant to a preneed cemetery company contract including sales of opening and closing or interment services, except for preconstruction mausoleum crypt cemetery company contracts ninety percent of which shall be deposited in an interest bearing trust until completion of the mausoleum at which time ninety percent of these funds shall be released to the cemetery company and ten percent used for perpetual maintenance of the mausoleum, when the delivery thereof or completion of the mausoleum will be delayed more than one hundred twenty days from the initial payment on said contract. However, should the proceeds from the sale be financed through a lending institution, it shall be considered a cash sale. Deposits are required to be made by the cemetery company within thirty days after the close of the month in which said receipts are paid to it receipt.

(b) If payment is made on an installment or deferred payment basis, the seller shall have the option of depositing into the trust fund forty ninety percent of the amount of the principal initially, or alternatively, depositing forty ninety percent of the principal of each payment within thirty days after the close of the month in which said receipts are paid to it.
(c) (1) The trustee of the trust fund shall be appointed by the person owning, operating, or developing a cemetery company. If the trustee is other than a bank, savings and loan or other federally insured investment banking institution, the trustee shall be approved by the tax commissioner. A trustee that is not a bank, savings and loan or other federally insured investment banking institution shall apply to the tax commissioner for approval, and the tax commissioner shall approve the trustee when satisfied that:
(A) The applicant employs and is directed by persons who are qualified by character, experience, and financial responsibility to care for and invest the funds of others; and
(B) The applicant will perform its duties in a proper and legal manner and the trust funds and interest of the public generally will not be jeopardized.
(2) If the trustee is other than a bank, savings and loan or other federally insured investment banking institution, the trustee shall furnish a fidelity bond with corporate surety thereon, payable to the trust established, in a sum equal to but not less than one hundred percent of the value of the principal of the trust estate at the beginning of each calendar year, which bond shall be deposited with the tax commissioner.
(3) If the trustee is other than a bank, savings and loan or other federally insured investment banking institution, and if it appears that an officer, director or employee of the trustee is dishonest, incompetent or reckless in the management of a trust fund required by the provisions of this article, the tax commissioner may bring an action in the circuit courts of this state to remove the trustee and to impound the property and business of the trustee as may be reasonably necessary to protect the trust funds.
§ 35 - 5B - 8a. Disposition of proceeds; trusts; procedure for administration, department to promulgate rules and regulations.

(a) All sums paid or collected on such contracts entered into after the effective date of this section shall be handled in the following manner:

(1) The contract seller or other person collecting the funds may retain for his own use and benefits and for the purpose of covering his selling expenses, servicing costs and general overhead, an amount not to exceed ten percent of the total amount agreed to be paid by the contract buyer as reflected in the preneed cemetery contract. Such ten percent or other amount is exempt from the trust and refunding provisions of this article;
(2) All of the funds collected under the contract, less the amount authorized to be deducted under subdivision (1) of this subsection, shall be deposited under the provisions of subdivision (3) hereof;
(3) Unless otherwise specifically exempt under this article, all funds paid to or collected by any person from a preneed cemetery contract shall, within thirty days after receipt thereof by such a person, be deposited in this state (i) in the name of a trustee who is a contract seller, provider or person making the cemetery company contract available, in a state or federally chartered and insured bank, savings institution, building and loan institution located in this state or in a state or federally chartered credit union located in this state, or (ii) under the terms of a trust instrument entered into with a national or state bank having trust powers or a trust company located in this state.
(b) The funds to be deposited from more than one cemetery company contract may at the option of the recipient thereof or the certificate of authority holder, be placed in a common or commingled trust fund in this state under a single trust instrument.
(c) All deposits shall be placed in an account with a trustee in the name of the contract seller, provider or person making the contract available, as set forth in the contract, to whom the contract buyer makes payment. Records shall be maintained as to each contract showing the amount paid, the amount deposited and the amount invested with respect to any particular buyer's contract.
(d) All funds required to be deposited and covered by this article shall remain in this state.
(e) All accounts of money deposited in any bank, savings institution, building and loan association or credit union in accordance with the provisions of this article are subject to periodic examination by the department of banking of this state.
(f) The department shall promulgate rules in accordance with chapter twenty-nine-a of this code for the purpose of administering the provisions of this article.
(g) Vaults included in a preneed contract under article fourteen, chapter forty-seven of this code are exempt from the provisions of this article.
§ 35-5B-9. Seller required to keep records; withdrawal of funds.

Each seller of a preneed cemetery company contract shall record and keep detailed accounts of all contracts and transactions regarding preneed cemetery company contracts and the records shall be subject to examination by the tax commissioner.

Any contract buyer or legally authorized person, acting in his or her behalf, may cancel a preneed cemetery company contract prior to the death of the contract beneficiary by notifying in writing the contract seller or present obligor of the provisions thereof, if a different person, of such desire to cancel. The seller or obligor shall, in ten days after receipt of such notice, notify the trustee of such cancellation and the trustee shall within thirty days after receipt of written notification pay to the contract buyer, or his or her legal representative ninety percent of all funds placed in the trust account and paid on the contract. Ten percent of the funds shall remain in the trust to be used to defray the administrative costs of the contract seller.
§ 35 - 5B - 12a. Disciplinary proceedings; revocation of certificate; liquidation upon violation.

(a) The following acts constitute grounds for which the disciplinary actions in subsection (b) of this section may be taken against any person holding a certificate of authority or license pursuant to the provisions of this article:

(1) Violating any provisions of this article;
(2) Attempting to procure or procuring a certificate of authority or license under this article by bribery or fraudulent misrepresentation;
(3) Having had any certificate of authority or license to sell preneed cemetery company contracts revoked, suspended or otherwise acted against, including denial of certification or licensure, by a licensing authority of another jurisdiction;
(4) Being convicted or found guilty of a crime in any jurisdiction which directly relates to the sale of preneed cemetery company contracts;
(5) Making or filing a report required by this article which the certificate holder or licensee knows to be false or knowingly failing to make or file a report required by this article;
(6) Advertising goods or services in a manner which is fraudulent, false, deceptive or misleading in form or content;
(7) Engaging in fraud, deceit or misrepresentation in the conduct of business of the certificate holder or licensee;
(8) Failing to comply with a lawful order of the tax commissioner;
(9) Knowingly making any false or misleading statement, oral or written, directly or indirectly, regarding the sale of services or merchandise in connection with the conduct of the certificate holder's or licensee's business;
(10) Not maintaining the funds received under the contracts as required by this article;
(11) Failing to cancel a preneed cemetery company contract upon proper request and refund that portion of the amount paid on such a contract as required by this article;
(12) Failing to renew or qualify for renewal of its certificate of authority or license;
(13) Failing to produce records in connection with the certificate holder's or licensee's business or otherwise failing to comply with the provisions of this article or any rule promulgated by the tax commissioner pursuant to this article; or
(14) Soliciting by the certificate holder, its agents, employees, representatives or licensee through the use of fraud, undue influence, misrepresentation or overreaching or other forms of vexatious conduct as defined by law, this article or the rules of the tax commissioner as to preneed cemetery company contracts.
(b) Upon the violation of any of the provisions of this article, determined in an administrative hearing after notice and an opportunity to be heard, the tax commissioner may institute revocation proceedings regarding a certificate of authority or license to sell preneed cemetery company contracts, or file a complaint in a court of competent jurisdiction setting forth the relevant facts and praying for the issuance of an order to show cause why the certificate of authority or license to sell preneed cemetery company contracts should not be revoked.
(1) Upon application for such order to show cause, the court may, in its discretion, issue an injunction restraining the defendant from transacting further business until further order of the court.
(2) Upon return of such order to show cause, the court shall hear and try the issue forthwith. If the court determines that the person so charged as defendant in such proceeding has not been guilty of the omission, failure or violation alleged in the complaint by the department, the court shall dismiss such complaint. If the court finds that the charges of the department are supported by the evidence, it may enter an order directing the revocation of a certificate of authority or license to sell preneed cemetery company contracts.
(3) In any such order of liquidation or in any order or orders thereafter entered, the court shall provide a notice to creditors, filing of claims and all other details necessary and essential to an estate in receivership.
(c) When the tax commissioner finds any certificate holder or licensee guilty of any of the acts set forth in subsection (a) of this section after an administrative hearing, or finds that any burial goods are offered for sale when the offer is not a bona fide offer to sell such services or goods, it may enter an order imposing one or more of the following penalties:
(1) Denial of an application for a certificate of authority or license, including a renewal;
(2) Revocation or suspension of a certificate of authority or license;
(3) Imposition of an administrative fine not to exceed one thousand dollars for each county where there are separate violations;
(4) Issuance of a reprimand; or
(5) Placement of the certificate holder or licensee on probation for a period of time and subject to such conditions as the tax commissioner may specify.
(d) All preneed cemetery company contract buyers have a priority in claims against the provider, to the extent that their interest is set forth in this article.
(e) For purposes of this section, the acts or omissions of any person employed by or under contract to or on behalf of the certificate holder or licensee shall be treated as acts or omissions of the certificate holder or licensee.
(f) All prices or quotations of prices contained in any preneed cemetery contract shall be fully and clearly stated.
§ 35-5B - 19. Civil action; attorney's fees.

(a) The failure of a certificate holder or licensee to comply with the provisions of this article gives rise to a civil cause of action in favor of any aggrieved consumer or contract purchaser. Upon entry of a judgment for damages in favor of the plaintiff, the trial court shall award punitive damages in the amount of three times the actual damages awarded in the judgment.

(b) The prevailing party, after judgment in trial court and exhaustion of all appeals, if any, shall receive reasonable attorney's fees and costs from the nonprevailing party.
(c) The attorney for the prevailing party shall submit a sworn affidavit of his time spent on the case and his costs incurred for all the motions, hearings and appeals to the trial judge who presided over the civil case.
(d) The trial judge shall award the prevailing party the sum of reasonable costs incurred in the action, plus a reasonable legal fee for the hours actually spent on the case as sworn to in an affidavit.
(e) Any award of attorney's fees or costs shall become part of the judgment and subject to execution as the law allows.



NOTE: The purpose of this bill is to further regulate preneed cemetery contracts generally and to provide additional protection for consumers of preneed cemetery company contracts. The bill requires cemetery companies to obtain a certificate of authority and licenses to conduct preneed cemetery services. It establishes new and renewal fees.

The bill prohibits certain types of solicitation and it authorizes the tax department to promulgate rules to implement the provisions of this bill. Funds received by a cemetery company are to be placed in a trust account. Vaults covered in other provisions of the statutes are exempt from this bill. Consumers are allowed to cancel cemetery company contracts. The bill provides that ten percent of the funds paid by a person canceling a contract, are to remain in the trust for use in defraying administrative costs of the seller. The bill also provides for disciplinary actions and revocation proceedings to be enforced by the tax commissioner. The bill also provides for treble damages and the payment of attorney fees to the prevailing party in certain civil actions.

Strike-throughs indicate language that would be stricken from the present law, and underscoring indicates new language that would be added.

§§35-5B-3a, 8a, 12a and 19 are new; therefore, strike-throughs and underscoring have been omitted.