Wednesday, January 25, 2006

Your mother wouldn't be proud

There are some jobs your mother probably wouldn't be proud of, like "My son, the international arms merchant," or "My son the tobacco lobbyist." Here's another one to add to the list. Working for these folks, Life Partners, Inc.

Life Partners, Inc. offers terminally ill people enough money to live comfortably in their last days in exchange for their life insurance policies. It's a business and I guess you could make an argument they are doing a service to people without anyone to leave their money to. And they are running a risk. Not a big one, but a risk nonetheless. Like maybe you might live too long because they'll find a cure for your disease.

This is now the substance of a contract dispute coming before the New Jersey Superior Court. Here's the story, courtesy columnist Monica Yant Kinney in The Philidelphia Inquirier.

In 1994 a woman in her early thirties was diagnosed with AIDS, then essentially a death sentence.
She began treatment, but wasn't optimistic. Back then, it seemed as if everyone who had AIDS died quickly.

Single, self-employed and with little savings, Smith was intrigued by an ad offering to buy her life insurance.

The terminally ill person gets money to live comfortably until the end - and then, the company makes a killing.

"It's ghoulish, but all insurance is a bit ghoulish," says Goldfein, who oversaw "tons" of deals like Smith's in the early 1990s. "AIDS was a sure thing."

And so, in 1994, Smith sold her $150,000 life insurance policy to Life Partners Inc. of Waco, Texas, for $90,000. As part of the contract, Life Partners set aside $5,510.64 to pay the premiums for Smith's health- and life-insurance policies, which were linked and could not be separated.

By investing in her fate, Life Partners assumed responsibility for the premiums as long as she lived.
"Purchaser," the contract read, "agrees to make any necessary contributions to the escrow fund to pay future premiums in the event that escrowed funds are exhausted and Seller shall have no further liability for payment of premiums on the policy." (Philadelphia Inquirer)
This looked like a pretty good deal for Life Partners because they would make $60,000 on a $90,000 investment. And indeed it would have been a good deal if new drugs for AIDS hadn't come along. Because Ms. Smith (not her real name) is still alive and has just turned 50. Life Partners has already ponied up $100,000 in insurance premiums in the interim.
Stung by the costly miscalculation, the publicly traded company ( is balking at paying Smith's combined health- and life-insurance premiums.

A stranger claiming to represent angry investors has twice called Smith at home to ask her how she was feeling.

All of it has her lawyers wondering whether Life Partners is trying to hasten Smith's death with all the stress about whether she's going to lose her health insurance.

"They were in a risky business, hoping for a massive windfall," notes Ronda Goldfein, executive director of the AIDS Law Project in Philadelphia.

"And when they don't get it, they slowly torture her and eat away at her peace of mind," she said.
It's not as if Life Partners is a company in trouble. Far from it. They paid investors dividends that average 16%.

Ms. Smith's life insurance is now $26,000 a year, higher than her yearly income. She couldn't possibly afford it, and now the company says it wants out.
Life Partners' president and General Counsel, Scott Peden, declined comment about the lawsuit - which he said he believes is the first of its kind in the company's 15-year history of helping "thousands of terminally ill patients."

Life Partners wants the case dismissed. In e-mails between the lawyers, Peden said Life Partners paid Smith's bills as an act of goodwill, not obligation.

"We didn't buy her health insurance. There's no value there, it doesn't benefit us," Peden told me in a brief phone interview Friday.

"I wish I could get somebody to make my house payment for me, but that's not going to happen."
To which Ms. Kinney, the columnist, sensibly replies:
Well, it could happen. If, say, a company hoping to make some money agreed to do it in a contract.
Good point. Really, really good point.