Texas Register, Volume 32, Number 44, Pages 7777-8060, November 2, 2007 Page: 7,898

                                
TexReg 5544), the commission is unable to respond to the com-
ments.
In general, TPNC comments that, because insurance-funded
permit holders sell prepaid funeral benefits contracts but do not
perform funerals, the department should regulate permit holders
"only for what they are permitted to do under Article 154.203."
(Finance Code, 154.203, requires insurance-funded permit
holders to promptly remit collected premiums to the insurance
company that issues the funding insurance policy.) If the permit
holder is an insurance company (or its affiliate), TPNC asserts
that the department should defer to regulation and examination
of its activities as an insurer by the Texas Department of Insur-
ance (TDI). If the department believes a funeral provider is not
fully honoring its obligations under a prepaid funeral benefits
contract, TPNC suggests that the department take action to
facilitate increased regulation of funeral provider activities by
the Texas Funeral Service Commission.
The commission disagrees with the fundamental premise
asserted by TPNC to support its objections and believes the
premise is flawed. TPNC essentially argues that a permit
holder's role under Chapter 154 is to serve as a broker of pre-
paid funerals, facilitating the combination of purchaser, funeral
provider, and insurance company into a mutually beneficial con-
tractual relationship and that what happens among those parties
after the prepaid contract is signed is not the responsibility of
the permit holder. This view is not supported by Chapter 154, a
regulatory system that focuses on the permit holder.
The purpose of Chapter 154 is to provide a regulatory framework
to allow a person to arrange and pay for a funeral in advance,
to provide safeguards to protect prepaid funds, and to ensure
that funds are available to pay for the prearranged services at
the time of need. Chapter 154 imposes a duty upon the depart-
ment and grants the department the authority to regulate sellers
of prepaid funeral benefits to ensure that (1) the prepaid funeral
benefits contract is performed in accordance with its terms and
the funeral merchandise and services are provided as specified
in the contract; and (2) funds are available to pay for the con-
tracted funeral merchandise and services.
The permit holder is the essential party to a prepaid funeral ben-
efits contract, a contract that could not legally exist or even be
offered for sale but for the state's grant of authority to the per-
mit holder. Under Chapter 154, the permit holder is the focus of
regulation, and the responsibilities of a permit holder do not end
upon sale of prepaid funeral benefits to a purchaser, they begin.
Finance Code, 154.107, requires a permit holder that discon-
tinues the sale of prepaid funeral benefits, but has outstanding
contracts, to renew the seller's permit until the contracts are fully
discharged. Similarly, Finance Code 154.052(b) requires a per-
mit holder that discontinues the sale of prepaid funeral benefits
but has outstanding contracts remaining to submit an annual re-
port until the contracts are fully discharged. Most importantly,
Finance Code, 154.053(a), requires a permit holder that has
outstanding contracts for prepaid funeral benefits to maintain
"any record required by the department to determine whether the
seller is complying with this chapter." To that end, the commis-
sion is empowered by Finance Code, 154.051(b)(2), to adopt
rules concerning "the keeping and inspection of records relating
to the sale of prepaid funeral benefits."
Summary of Adopted Section and Response to Comments
p25. 10(a)

New 25.10(a) consolidates into one subsection the general re-
quirements applicable to the place and manner in which records
must be kept and produced for department examination. TPNC
comments that subsection (a)(1) represents a significant change
in the Department's position on conducting examinations be-
cause it requires records to be produced at a physical location in
Texas for examination. The commission disagrees. The opening
paragraph of new subsection (a) recognizes that a permit holder
may obtain an exception in accordance with new 25.10(g)(3)
and (h). Absent an exception, the records must be made avail-
able at the physical location in Texas previously designated by
the permit holder in writing. The operation of this provision does
not differ from the manner in which the section operated previ-
ously. Previously approved exceptions to the required location
of records or examinations remain valid.
TPNC comments that 25.10(a)(1), (g)(3), and (h) as proposed
do not provide for a process to address concerns of permit hold-
ers that the department may unjustly deny exceptions or with-
draw previously approved exceptions in the future. TPNC ar-
gues that a permit holder should be given a reasonable amount
of time to move the physical records and make them available
if the department changes or revokes an exemption. The com-
mission disagrees. The commission included in previous 25.10
and in this new 25.10 a process for requesting an exception
that permits records to be maintained and examined at an out-of-
state location in order to ease regulatory burden when feasible.
The ability of the department to grant exceptions is necessar-
ily dependent upon obtaining biennial legislative waivers of the
"out-of-state travel cap" imposed on state agencies by Section
5.08 in Article IX of the Texas General Appropriations Act. The
department intends to continue to perform out-of-state examina-
tions as long as it has this waiver, which must be requested from
the legislature each biennium, but no assurances can be offered
that the waiver will be renewed. If department staff is not au-
thorized to travel out-of-state, the department will be required to
conduct examinations in Texas. It is for this reason that every
exception letter authorizing maintenance of records out-of-state
states that the authorization can be revoked at any time upon
written notice to the permit holder. Exceptions to the require-
ments that records be examined in Texas can only be allowed
when it is feasible for examinations to occur out of state. Permit
holders have no legal right to challenge denial or revocation of
an exception.
Section 25.10(a)(2) and (a)(3) require a permit holder to provide
pre-requested records to examiners at the beginning of the ex-
amination, and to provide records requested during the exami-
nation "in a manner that does not impede the efficient conduct
of the examination." TPNC criticizes the highlighted phrase as
overly subjective and requests that the phrase be removed or
else expanded to include specific standards of determination for
whether the requirement has or has not been met. The commis-
sion disagrees. The rule language is designed to ensure that
the examination is conducted in a manner that is most produc-
tive and efficient for both the permit holder and the examiners.
Experience has demonstrated that a few permit holders will on
occasion delay delivery of records the permit holder knows will
open an avenue for investigation or will subject the permit holder
to regulatory criticism. These delays impede the examination
process and, in some cases, records not made available un-
til the close of an examination cannot be adequately reviewed.
Specific standards cannot be established because the effect of
delay in producing documents will vary with each examination,
depending on the type of information not provided and the time

32 TexReg 7898  November 2, 2007  Texas Register