Some Prepaid Funeral Practices Cast Pall

There are only so many funerals in a town of 2,874 people.

So when Bobby Brownfield built an expansive new mortuary in a field by the Dairy Mart and lavished it with cut-glass doors, antiques in its parlors and concrete urns atop the front gate, folks here clucked a little.

“I just teased him,” recalled Ellice Kidd, an 87-year-old retired contractor who’d prepaid Brownfield for his future embalming and burial. “I said, ‘You’re spending my money, aren’t you?’ But he said, ‘No, I can’t spend that until you die.”’

It turns out Brownfield couldn’t wait that long, prosecutors say.

Even before the new home opened five years ago, they say, Brownfield cashed the $5,200 check Kidd wrote for his funeral. Other funds were also pocketed--Sydney and Judelle Bunnell’s matching checks for $5,481, Bobby Garrison’s $6,121, Myrtle Blakeman’s $25,000.

The claims of fraud don’t end there. Customers like Pearl Lobb, 87, prepaid for their funerals by signing insurance contracts. So Brownfield waited a while and then notified Forethought Insurance Co. that Lobb and others had died and claimed payment for funerals he’d supposedly provided. To do that, he even allegedly forged relatives’ signatures.

“I’m the lady who’s been dead for two years,” Lobb said, rising from a velour armchair in her living room and offering her hand to a recent visitor.

In all, Brownfield is accused of stealing several hundred thousand dollars--a more precise figure is hard to come by because of separate investigations by various local and federal agencies.

Pre-Need Services and Problems Grow

That so many people signed up with Brownfield points to the rising popularity of prepaid funerals and burials here and across the country, but it’s a practice that does not always deliver what it promises consumers.

Known in the trade as “pre-need,” such services now account for more than one in five funeral sales. The amount of money invested in pre-death trust funds and insurance policies is estimated at up to $60 billion.

The growth of pre-need coincides with the rise of death-care conglomerates--huge, publicly traded companies that have bought up many smaller operators. The pace of those acquisitions has left the large companies struggling under heavy debt loads. The Loewen Group, the nation’s No. 2 funeral and cemetery firm, is operating under bankruptcy protection.

The financial shakiness of the major companies has raised concerns about the security of prepaid trust funds. It also explains, in part, efforts by some state and federal officials to more strictly protect those accounts.

Among those states is Florida, where a bill has been introduced that would tighten control over prepaid funeral funds. That comes after two major death-care firms won permission from state regulators last fall to take $84 million in prepaid funeral funds and replace the money with bonds backed by an insurance policy.

Pre-need arrangements prove a comfort to many because their families are spared the anguish and cost of planning a funeral. There’s also strong appeal for those looking to beat inflation. The average American funeral costs $5,000, up from about $3,400 in 1989, according to the Funeral Directors Assn. of America. Burial adds another $2,500.

But even as they reassure customers, pre-need arrangements also have triggered a flurry of troubling questions and widely scattered abuses.

“Consumers are giving their money and control of their money over to the industry,” said Adrienne Oleck, an American Assn. of Retired Persons consumer-protection advocate. “It’s too easy to take advantage, especially when the consumer is an older, vulnerable person.”

Aside from instances of outright fraud, problems include contracts that fail to cover all costs or that are so packed with restrictions that they may be largely unusable if a consumer dies far away from the funeral home they signed with.

Funeral-industry executives say such problems are rare exceptions. Instead, they say, growth in the pre-need business is a testament to its value.

“When we talk to families, while we point out the benefit of locking in the price, the real issue is, ‘How do you handle this event?’,” said Brian Marlowe, chief operating officer of Stewart Enterprises Inc., the nation’s third-largest death-care firm. “We think the most important aspect is the decision-making, removing the burden from one another and from the children.”

But a number of pre-need fraud cases have arisen. Among them:

* In Pennsylvania, six men were convicted last fall in an investment scheme that defrauded 27 mortuaries of $5.9 million in prepaid funeral funds. Funeral directors and a banker collected commissions for funneling consumers’ money from bank trust funds to a New York investment firm that bought, among other things, a Bronx strip club.

* In Oklahoma, a funeral director who once ran for Congress was sentenced in January to nearly five years in prison for fraud. Elijah Thomas Dunlap Jr. admitted using $853,000 from his company’s accounts, most of it pre-need funds, to secure a bank loan for a house in Dallas and to inflate his net worth to attract investors to his company.

* In Minnesota, state auditors are examining the books at two cemeteries operated by Loewen after the company admitted in 1997 it had failed to place in trust $3.8 million in prepaid burial funds for a Minneapolis cemetery. The company reportedly told consumers it had installed the underground vaults they had paid for, but in reality, many of the vaults had never been built.

* In West Virginia, regulators have sorted through four pre-need cases, including one in which problems surfaced only after Service Corp. International, the nation’s largest death-care company, bought a Martinsburg funeral home and determined the previous owner had taken $2.8 million in prepaid funds. SCI made good on the payments.

* In South Carolina, funeral home owner Joseph Palmer is charged with stealing up to $250,000 in prepaid funds from nearly 50 customers. Palmer took the money over six years, prosecutors say, a pattern of irregularities never detected by state regulators.

Acquisitions of ‘80s Spurred Prepayment

“They took all the savings they had out of the bank, plus my dad sold all his cows to pay for his prearranged funeral,” said Margie Jean Dozier Minick, whose parents and uncle, all ailing and in their 80s, turned over nearly $17,000 to Palmer.

Both South Carolina’s Palmer and Kentucky’s Brownfield have pleaded not guilty to charges. Brownfield refused to talk about the case, and his attorney, Doug Hubbard, would not comment on what happened to the money his client was to put in trust.

“Certainly he feels like he has been entrusted to bury these people, and he certainly wants to fulfill his side of that bargain,” Hubbard said.

Prepayment has its roots in the rural South of the 1930s, when salesman went door-to-door pitching burial insurance.

But pre-need really began to take off in the late 1980s. That’s when companies like SCI, Loewen and Stewart stepped up acquisition of family-owned funeral homes. The companies aggressively marketed pre-need funerals, and smaller companies followed suit.

“There’s a lot of competition that we all have and the more active the larger acquirers became . . . the more concerned anyone would be about preserving [his] market,” said Ron Troyer, manager of Kok Funeral Homes in St. Paul Park and Cottage Grove, Minn.

At the same time, a growing number of consumers--particularly aging baby boomers--have flocked to prearranged funerals.

“Boomers plan everything,” said William Burns, an analyst who tracks the death-care industry for the Johnson Rice brokerage firm in New Orleans. “A lot of them are starting to go to their first serious funeral, for their parents, and they see how many decisions have to be made, and that you don’t want to make these decisions under duress.”