Earlier in May the Attorney General of the State of California issued a press release which you can read here announcing an agreement with Service Corporation International (SCI) over an eight-year dispute on how SCI delivered on their preneed funding.

In essence, concerning preneed sold through SCI’s Neptune and Trident locations in California the attorney general stated this, in the press release, about the product and delivery of the preneed, “. . . SCI presented consumers with two contracts, one for heavily marked up merchandise, and one for deeply discounted cremation services. SCI then placed into trust only the discounted funds it allocated to the cremation services, keeping out of trust the funds it allocated to merchandise. Through this practice, SCI withheld from trust more than half of the total price of the Standard Plan. . . . Further, when a Standard Plan purchaser requested a refund, SCI only refunded the portion it had allocated to cremation services and not any of the money allocated to merchandise. In other words, SCI typically refunded less than half of a consumer’s money. The complaint alleges that these practices violate California law, which requires funeral service providers to provide a full refund of the amount paid for the entire pre-need cremation package at any time before services are rendered.”  

Again, acccording to the California AG press release the settlement reached will require “SCI (to) . .  pay a $23 million civil penalty, pay full consumer restitution to the consumers who cancelled their plans but did not get a full refund, and be subject to strong injunctive terms which provide meaningful protections for California consumers.”

In last weeks Earnings Call relating to the 1st Quarter 2024 financials of SCI, SCI CEO Thomas Ryan responded to a question on the subject by saying that SCI admitted no wrongdoing on the part of the company or the Board but did reach a settlement to put the action behind them.

He also mentioned that SCI will now move to insurance funded preneed investments in California and expects that agency commissions from such will offset the financial effects of not delivering the merchandise at the time of purchase.  The following is CEO Ryan’s entire answer to the question that was posed by A.J. Rice of UBS Financial:

“Sure A.J. Thanks for the question. So after about eight years of back and forth, we reached the settlement with the California Attorney General that includes the cost reimbursement and civil penalties of $23 million, which you probably saw in the press release, A.J. and provide certain pre-need contract customers with the right to receive refunds.

Tom Ryan
SCI CEO

There’s no admission of any wrongdoing or fault by the company or the officers of the Board. We believe that our fourth quarter 2022 accrual that we made in relation to this is adequate to cover the $23 million civil penalty and reimbursement as well as any estimated cancellations from the customer contract.

In a little history here the lawsuit was brought by the state. It was primarily based on the interpretation of the Short Act, which is under California law very specific to California. And while we don’t agree with California’s interpretation, we’ve agreed to certain operational changes that allowed us to remedy the dispute.

A.J. you mentioned any changes. And I think in my comments I mentioned that in California, we had stopped delivering merchandise and that’s one of the reasons that the non-funeral home revenues have been down. And as we’ve been finalizing these negotiations A.J. we started looking at the model. And while this is very specific to California and again we believe in compliance with every law, we saw an opportunity to streamline the SCI Direct model.

And so as I mentioned over time here, we’re going to transition SCI Direct to go from delivery merchandise in advance and delivering TRPP and shift that product to an insurance product. And the reason we could do that, one, is to streamline the model; two, it provides protection for our customers that pay over time. So by having an insurance product if I pay over time and die then I’m fully paid for. So we can add that benefit.

It also allows us to leverage the value of our insurance sales production stream because we have such a powerful business and this will just add the power of that. And it will generate general agency revenues, which will offset the effects of not delivering the merchandise.

And so now we’re going to generate these revenues upfront and the average contract revenue coming out of the backlog of SCI Direct is going to be significantly higher. So I think it’s a win-win for everybody. We’ve settled a dispute with the AG and we’re happy about that. So hopefully that covers the questions you guys may have around that topic.”

Disclaimer— The author of this article for Funeral Director Daily is a stockholder of Service Corporation International.

More news from the world of Death Care:

• Here’s how some Chicagoans are taking an eco-friendly approach to funerals.  Chicago Sun-Times (IL)
• Adopt-a-cemetery program proposed.  The Post-Journal (NY)
• Ticked off @cremation prices.  The Orlando Sentinel (FL)
• Funeral home reveals what happens when no one comes to collect the ashes.  Newsweek
• The FTC again fails to protect consumers.  Independent Institute

Enter your e-mail below to join the 3,572 others who receive Funeral Director Daily articles daily:

“A servant’s attitude guided by Christ leads to a significant life”