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DAN MORALES
 ATTORNEY
      GENERAL                                  July 25, 1997


   The Honorable Antonio 0. Garza, Jr.                 Opinion No. DM-445
   Secretary of State
   Office of the Secretary of State of Texas           Re: Whether the Automobile Club Services Act,
   P.O. Box 12697                                      Transportation Code chapter 722, authorizes
   Austin, Texas 7871 l-2697                           automobile clubs to contract to reimburse
                                                       members for expenses incurred in obtaining
   Commissioner Elton Bomer                            services (RQ-917)
   Texas Department of Insurance
   P.O. Box 149104
   Austin, Texas 787149104

   Dear Secretary Gatza and Commissioner Bomer:

           You ask whether the Automobile Club Services Act, Transportation Code chapter 722 (the
   “act”), authorizes automobile clubs to contract to reimburse members for expenses they incur
   obtaining services an automobile club is authorized to provide under the act. You suggest that the
   act does not authorize an automobile club to contract to reimburse members for expenses other than
   legal fees incurred in the defense of traftic offenses. You also suggest that a contract to reimburse
   a member for expenses incurred obtaining a service constitutes the business of insurance rather than
   the provision of a service, and that the act, with the exception of reimbursement of legal fees, does
   not authorize automobile clubs to engage in the business of insurance. We agree.

          Section 722.002 of the Transportation Code defines an “automobile club” as follows:

              [A] person who, for consideration, promises the membership assistance in
              matters relating to travel, and to the operation, use, or maintenance of a motor
              vehicle, by supplying services such as services related to:

                  (A)   community traftic safety;

                  (B)   travel and touring;

                  (C)   theft prevention or rewards;

                  0)    maps;

                  Q     towins;
The Honorable Antonio 0. Garza, Jr. - Page 2          (m-445)
Commissioner Elton Bomer



               (F)   emergency road assistance;

               (G) bail bonds and legal fee reimbursement in the defense of traffic
                   offenses; and

               (H) purchase of accidental injury and death benefits insurance coverage
                   from an authorized insurance company.

Transp. Code 4 722.002(2).

        A person may not engage in business as an automobile club unless the person meets the
requirements of chapter 722 and obtains an automobile club certificate of authority from the
secretary of state. Id. $722.003. An automobile club is required to file a copy of its service contract
with the secretary of state. Id. $ 722.010(a). Section 722.008 authorizes the secretary of state to
revoke or suspend an automobile club’s certificate of authority if the secretary determines that the
club has, among other things, violated chapter 722 or is not acting as an automobile club. Id.
$722.008(a)(l)(A), (B).

        Chapter 722 contains two provisions regarding insurance. Section 722.012 prohibits an
automobile club from advertising or describing “its services in a manner that would lead the public
to believe that the services include automobile insurance.” Id. $j722.012(2), Section 722.013
provides that an automobile club “is exempt from the insurance laws of this state, except that
accidental injury and death benefits furnished to club members must be covered by a group policy
issued to the club for the benefit of its members.” Id. 5 722.013(a).

        You ask whether the phrase “supplying services” found in the definition of “automobile club’
includes reimbursement for any service identified in the definition, other than legal fee
reimbursement, which is expressly listed as a service in section 772.002(2)(G) and is clearly within
the authority of an automobile club. Your letter states that “[r]egulatory questions have arisen when
an applicant [for an automobile club certificate of authority] proposes to provide reimbursement for
an enumerated service for which reimbursement has not been expressly authorized.” You state that
the Department of Insurance “has historically viewed contracts providing for the indemnification or
reimbursement against specified loss upon the happening of certain, fortuitous events as constituting
the business of insurance within the meaning of [Jnsurance Code article 1.14-l].”

        The letter provides towing as an example: “Rather than provide the service or contract with
others to do so, the applicant [for an automobile club certificate of authority] offers to reimburse or
indemnify a member, up to a fixed amount, for expenses incurred by the member who has
independently arranged for his or her own towing with a third party contractor.” The Department
of Jnsurance has promulgated forms and rates for towing reimbursement as a rider to the Texas
Personal Auto Policy. Your letter states that while the current rate approved by the Department of
Jnsurauce “for towing reimbursement is $2.00 per automobile for a $40 lit per disablement [s]ome
auto clubs typically charge sums between 20 and 100 times greater than the approved rate.”



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The Honorable Antonio 0. Garza, Jr. - Page 3                  (lX-445)
Commissioner Elton Bomer



        Your letter suggests that a contract to reimburse members for expenses or to indemnify
members for expenses incurred obtaining services other than legal fees exceeds the statutory
authority of an automobile club. We agree. Chapter 722 was codified by the legislature in 1995.’
The statutory predecessor to chapter 722, now-repealed article 1528d, V.T.C.S.,2 defined
“automobile club” in section 2(a) as follows:

             [A]ny person who in consideration of dues, assessments, or periodic
             payments of money, promises its members or subscribers to assist them in
             matters relating to travel and the operation, use or maintenance of a motor
             vehicle in the supplying of services which by way of illustration and not by
             way of limitation may include such services as community traffic safety
             service, travel and touring service, theft or reward service, map service,
             towing service, emergency road service, bail bond service and legal fee
             reimbursement service inthedefense of traffic offenses, and the purchase of
             accidental injury and death benefits insurance coverage corn a duly
             authorized insurance company. [Emphasis added.]

Act of May 15, 1963, 58th Leg., B.S., ch. 250, 4 2(a), 1963 Tex. Gen. Laws 678, 678.’ The
codification of chapter 722 in the Transportation Code was part of a nonsubstantive revision4 and
any construction of chapter 722 must be consistent with the former statute. See Johnsonv. City of
Fort Worth,774 S.W.2d 653,654-55 (Tex. 1989) (stating that, when conflict exists between former
statute and nonsubstantive revision, former statute controls); Attorney General Opinion N-1230
(1990) at 8 (quoting Johnson,774 S.W.2d at 654-55).

        The repeated use of the word service in former section 2(a) indicates that the legislature
intended automobile clubs to provide services directly, not to contract to reimburse members for
expenses incurred in obtaining these services. In addition, the description of reimbursement for legal
fees as a service is notable. We believe that the fact that the legislature described legal fee
reimbursement as a service supports our view that the legislature did not intend generally to permit
automobile clubs to contract to reimburse to members for expenses incurred in obtaining any other
services.

        It appears that the legislature decided to permit automobile clubs to reimburse members for
legal fees in response to a specific legal ruling. In 1962, some months before article 1528d was


        ‘See Act of May 1, 1995,74tb   Leg., RS., ch. 165,s   1,1995 Tex. Gen. Laws 1025,1814,1817.

         ‘See Act ofMay 15,1963,58th     Leg., R.S., ch. 250, 5 2(a), 1963 Tex. Gen. Laws 678,678,   repealed by Act
ofMay   1,1995,74tb  Leg., RS., ch. 165,s 24, 1995 Tex. Gen. Laws 1025, 1870.




         ‘See Act of May 1, 1995,74tb Leg., RS., ch. 165, 5 25, 1995 Tex. Gen. Laws 1025, 1871 (“This Act is
intended as a recodification only, and no substantive change in law is intended by tbis Act.“).




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The Honorable Antonio 0. Garza, Jr. - Page 4          (IN-445)
Commissioner Elton Bomer



enacted an appellate court had determined that an incorporated association that agreed to reimburse
members for attorneys fees incurred in the defense of a moving traffic violation was engaged in the
business of insurance. See TexasAss ‘n of QualifiedDrivers,Inc. v. State,361 S.W.2d 580 (Tex.
Civ. App.-Austin 1962, no writ). The legislature appears to have intended to change the result of
this opinion by defining reimbursement of legal fees in this context as a service. Given the court’s
holding and the legislature’s subsequent action, the legislature appears to have been well aware that
an agreement to reimburse members for expenses incurred obtaining other services would also
constitute the business of insurance. The legislature did not act, however, to expressly authorize
automobile clubs to contract to reimburse members for expenses other than legal fees. For this
reason, we believe that the statutory definition of the phrase “automobile club” indicates legislative
intent to preclude automobile clubs from agreeing to reimburse members for expenses incurred in
obtaining other services.

         The two provisions of chapter 722 regarding insurance, sections 722.012(2) and 722.013(a),
are wnsistent with our construction of section 722.002 to preclude an automobile club from agreeing
to reimburse its members for expenses incurred obtaining services other than legal fees. The
relationship between these two provisions is more apparent from the original statutory language,
section 8 of former article 15284 which provided in pertinent part:

                (a) Automobile Clubs operating hereunder [shall not] advertise or
            describe their services in such a manner as would lead the public to believe
            such services include automobile insurance.

                 (b) All Automobile Clubs operating pumuaut to a certificate of authority
            issued hereunder shall be exempt from the operation of all insurance laws of
            this State, except that accidental injury and death benefits furnished members
            of such Automobile Clubs shall be covered under a group policy issued to the
            Automobile Club for the benefit of its members and such policy shall be
            issued by a company licensed to write such insurance in this State.

Act of May 15, 1963, 58th Leg., R.S., ch. 250, 5 8, 1963 Tex Gen. Laws 678, 680. Former
subsection (a) suggests that, with the exception of reimbursement for legal fees, the legislature did
not intend for automobile clubs to provide insurance. The exemption t?om insurance laws in former
subsection (b) appears to have been predicated on former subsection (a) and to have assumed that
automobile clubs would not engage in the insurance business.

         This construction of the relevant statutory language is supported by the legislative history
of former article 1528d. The legislation at issue, House Bill 172, as introduced, contained
detinitions of various services. These definitions appear to have been intended to authorize “motor




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The Honorable Antonio 0. Garza, Jr. - Page 5           (CM-4451
Commissioner Elton Bomer



clubs” to provide a broad array of services. The definition of the term “motor club service” may
have been intended to expressly authorize a motor club to reimburse its members for services:

                “Motor club service” means the rendering, tiunishing or procuring of
            towing service, emergency road service, bail bond service, discount service,
            buying and selling service, theft service, map service, touring service, license
            service and reimbursement of legal service, as herein defmed, to any person,
            in connection with the ownership, operation, use or maintenance of a motor
            vehicle by such person, in consideration of such other person being or
            becoming a member of any company rendering,procuring,furnishing.or
            reimbursingthe same, or being or .bewming in any manner affiliated
            therewith, or being or becoming entitled to receive membership or other
            motor club service therefrom by virtue of any agreement or understanding
            with any such company.

See H.B. 172,58th Leg., RS. (1963) (filed version; emphasis added). Jn addition, House Bill 172,
as introduced, defined the term “insurance service” to mean “any act by a company . . selling or
giving... a policy of accident insuran ce covering loss by the holder of a service contract . . . as the
result of injury or death . . . following an accident resulting from the ownership, maintenance,
operation or use of a motor vehicle.” Id. We believe the fact that the legislature deleted these
provisions from subsequent versions of House Bill 172 supports the position that the legis!ature did
not intend to permit an automobile club to reimburse members for services, other than legal services,
or to engage in thebusiness of insurance.See Transportation      Ins. Co. v. Maksyn,580 S.W.2d 334,
337-38 (Tex. 1979) (“The deletion of a provision in a pending bill discloses the legislative intent to
reject the proposal. . . . Courts should be slow to put back that which the legislature has rejected.“);
2A NORMANJ. SINGER,SUTHERLAND            STATUTORY   CONSTRUCITON     5 48.18 (5th ed. 1992) (adoption
of amendment is evidence that legislature intends to change provisions of original bill).

         Our construction of chapter 722 is further supported by a prior opinion of this office,
Attorney General Opinion M-994, which considered whether the secretary of state should issue a
certificate of authority to an automobile club that agreed to collect and hold membership fees that
would be available to the member to draw on “to reimburse an insurance carrier the amount of any
deductible it pays out in settlement of claims under a policy of deductible automobile insurance, and




                                                   p. 2491
The Honorable Antonio 0. Garza, Jr. - Page 6                     (DM-445)
Commissioner Elton Bomer



to pay the increased cost of insurance when a policy must be obtained at higher than normal rates.”
Attorney General Opinion M-994 (1971) at 1.5 In the view of this office, by offering this service the
association was engaging in the insurance business:

                  An insurance wntract arises when for a stipulated consideration, whether
             called a premium or a fee or something else, one party undertakes to
             compensate another party for loss on a specified subject by a specified peril
             or contingency. . . . When the association, in consideration of a membership
             fee, obligates itself to honor the member’s draft for the amount of the
             deductible, which otherwise would be lost by the member, in the event of a
             collision, the association is engaging in the insurance business.

Id. at 3. This office concluded that this membership provision, if approved by the state, “would
authorize the association to do business as an insurance carrier without a certificate of authority, in
violation of Article 1.14 of the Texas Insurauce Code, and that the club is not authorized by Article
1528d to engage in the insurance business.” Id.

        The conclusion in Attorney General Opinion M-994 that an automobile club is not authorized
to engage in the insurance business has stood unquestioned since 1971. We,believe that a Texas
court would hold that Attorney General Opinion M-994 correctly concluded that an automobile club
is not authorized to engage in the business of insurance. We also believe that a court would
determine that an agreement by an automobile club to reimburse its members for costs incurred
obtaining automobile-related services wnstitutes the business of insurance. See QualifiedDrivers,
361 S.W.2d at 581-82 (detining “insurance” as contract by which one party for consideration
assumes particular risks of other party and promises to pay him or someone named by him a certain
sum on a specified contingency).

        In sum, we construe chapter 722 to authorize an automobile club to contract to reimburse
members for legal fees incurred in the defense of tra& offenses and to preclude an automobile club
from agreeing to reimburse its members for expenses incurred obtaining any other service. An
agreement to reimburse members for expenses incurred obtaining any other service exceeds the
statutory authority of an automobile club under chapter 722 and constitutes the business of
insurance. Given the language of chapter 722 and its statutory predecessor, the legislative history,
and the 1971 opinion of this of&e, we can reach no other conclusion.6 If the legislature wishes to


          5After former article 1528d was enacted in 1963, it was only amended twice, io 1983 and 1987, before it was
codified in the Traqatation     Code in 1995. See Act ofApril 21,1983,68&       Leg., RS., ch. 69, $ 12, 1983 Tex. Gen.
Laws 310,318; Act of May 23,1987,7Otb Leg., RS., ch. 1007, $5 11,12,1987            Tex. Gen. Laws 3404,340s.     Those
amendments in-          the amount of certain fees set by the act They are not relevant to tbis opinion and do not affect
the continued validity of Attorney General Opinion M-994.

         6Giveo our conclusion that an automobile club is not authorized to agree to reimburse memben for expenses
incurred obtaining any sexvice other than legal services, we do not believe it is necessary to address your second
                                                                                                      (continued...)




                                                            p.   2492
The Honorable Antonio 0. Garza, Jr. - Page 7                (IX-445)
Commissioner Elton Bomer



amend chapter 722 to authorize automobile clubs to contract to reimburse members for expenses
incurred obtaining other services and to exempt such contractual terms from regulation by the
Department of Jnsurance, however, it is within the legislature’s power to do so.

                                             SUMMARY

                 Chapter 722 of the Transportation Code authorizes an automobile
             club to contract to reimburse members for legal fees incurred in the
             defense of traffic offenses. An agreement to reimburse a member for
             expenses incurred obtaining any other service exceeds the statutory
             authority of an automobile club under chapter 722 and constitutes the
             business of insurance.




                                                      DAN MORALES
                                                      Attorney General of Texas

 JORGE VEGA
 First Assistant Attorney General

 SARAH J. SHIRLEY
 Chair, Opinion Committee

 Prepared by Mary R. Crouter
 Assistant Attorney General




question about the authority of ao automobile club to agree to reimburse members for services not listed in section
722.002(2). Our conclusion applies to bath listed and unlisted services.




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