Die, damn you - I've got money on it

"I'VE never felt like anyone wanted me dead before," says Kendall Morrison, a 35-year-old New Yorker with Aids. But the Michigan investigator who purchased Morrison's life insurance policies five years ago certainly seems to.

In a Wall Street response to the Aids epidemic, American investors have in recent years been buying Aids patients' discounted life insurance policies, taking over the premium payments and netting the policies' full face value when the sellers die. Since the financial return of the investor is inversely related to the longevity of the seller, these deals, known as viatical settlements, are inherently ghoulish. But their defenders argued that they help to get cash into the hands of the people who may desperately need it to buy things like medicine. Now the new Aids treatments are extending the lives of some sellers beyond the investors' worst nightmares - adding a grisly new dimension.

Consider Morrison. Five years ago, he sold his two policies for around half their $350,000 value. "I had lost my health insurance and was practically homeless," the former magazine publisher recalls. "I didn't see much light at the end of the tunnel. I was extremely sick, wasting, unable to retain food, in diapers."

But after five nearly fatal bouts of pneumonia, he went on a drug regime that increased both his cell count and his waistline. The investor, who'd been told he'd be contacted when Morrison died, grew impatient. "He kept sending me FedExes and calling, which I found morbid," says Morrison. "It was like, `Are you still alive?'"

Morrison moved, changed his telephone number, and "kind of lost him for a while". But then earlier this year, the investor returned with a vengeance: he threatened to sue Morrison's life insurance broker for fraud and breach of contract because Morrison had not died. Morrison's broker, who left the business and now runs an auto dealership in Florida, agreed to repurchase the policies to avoid a lawsuit and, he says, to spare Morrison further anguish.

But the legal tactic is spreading. Investors in Dignity Partners, a San Francisco company that got into trouble after the new protease inhibitors were introduced, are suing the board for not warning them that the new drugs would affect their investments.

"There will be hundreds of lawsuits," predicts Philip Loy, whose American Viatical Services in Atlanta conducts medical evaluations to determine life expectancy used in viatical settlements. "We've been contacted by attorneys and investors who are preparing or considering filing class- action suits."

In the wake of the protease revolution, roughly half the viatical settlement companies have gone out of business, and those that remain are diversifying. "The industry has sort of reinvented itself," says William Kelley, executive director of the Viatical Association of America. "While they're still buying policies from people with Aids, they've enjoyed a great deal of success in marketing the viatical service to people with other diseases." These include cancer and multiple sclerosis. And they're beginning to reach out to healthy pensioners who say: never mind the children, what about us?

Potential investors should be warned that, to get the most money up front, unscrupulous brokers have been known to underestimate the seller's life expectancy; sellers' medical histories should be independently vetted. As one player puts it: "There's no way that a two-year who was bought as a one-year can perform on time."