Honorable 0. P. Lockhart, Chairman
Board of Insurance Commissioners
Austin, Texas

Dear Sir:                               Opinion NJ. O-6101
                                        Rer Under the facts submitted is
                                        the form of agreement in question
                                        an insurance contract subjeating
                                        the issuance of it to the supemi-
                                        sion of the Board of Insuranoe
                                        Commission?

           We are in receipt of your request for an opinion on the above
question, and smm has been oarefully considered. The form of contract
and agreement suhnitted by you and made the basis of said question is as
follows*

                      "CONTRACT FOR PERSON& MEDICAL.SERVICES



    "COUNTY OF       P

           "This memoranda     of agreement is made and entered
     into this      day of            , 1944, by and between
                             , hereinafter called emplopr, and
       S.
                                                                ,
     hereinafter called physioians.

     "WITNESSETH,

                                   I.

           'For and in consideration of the sum of
     Dollars paid by the employer on the        day of each
     month to the physicians at the pbysioian'office in
                   , Texas, said physicians agree to render
     the following servioes to and for the employer, subject
     to the limitations contained herein, to-wit:

           "L. All office calls, including nursing oare or
     treatments that the employer shall necessarily need, not
     exceeding three in any one week or ten on account of any
     one accident or any one period of siokness.
Hon. 0. P. Lockhart, Page 2 (o-6101)



            “FL Hospital confinement, including general nursing
      care and hospital service for the period the employer shall
      necessarily be confined therein, not exceeding twenty-one
      (21) days hospital service on any one period of sickness or
      accident in one twelve month period following the date of
      this memorandum of agreement.

                 "10   Private room or bed service, based on
                       a $5.00 per day rate.

                 “2.   All   general   nursing care and hospital
                       care.

             "C. All services of professional and non-professional
       employees of said physicians.

             "D. Use of operating room when employer is a bed pa-
       tient for a major or minor operation.

             "E. All services of anesthetist if employed by
       physicians.

              "F. Maternity services till be provided under this
       contract for a maximum of five days, including nursery care
       of newlwrn, if employer has kept this contract in continuous
       force for one year or more irmnediatelyprior to such hospit-
       al confinement.

                                          II*

             “A. All services provided herein are      to be rendered
       at the-Medical Center kspital at                * Texas, by
       said physicians.

             "B. Either party to this contract may cancel the same
       at any.time upon ten days written notice to the other party;
       said notices shall be sent by registered mail to such parties
       to the address as shown by this contract.

                                         III.

             "A. None of the services.heretofore mentiond shall be
       performed by said physicians until said contract has'been in
       force and effect for thirty (30) days.

             "B. This contract does not cover drugs; supplies;
       services for incurable cases, ambulatory patients, semi-
       invalidism, self-destruction3 losses sustained in viola-
       tion of the law; cases caning under Hospital Insurance or
         ,




Hon. 0. P. Lockhart, Page 3 (o-6101)



      under provisions of any Workmen's Compensation or Employer's
      Liability Insurance. This contract does not cover abortion;
      syphilis, or complications arising therefrom, virulent or
      contagious diseases3 rest cures3 mental or nervous disorders3
      venereal diseases3 tuberculosis.

                                       IV.

             "In the event that all facilities of the Medical
       CenterHospital are in use because of an epidemic or
       any act beyond the control of the physicians, the maploy-
       er shall wait until facilities are available for any
       hospital services povided for in this contract; provided,
       however, that if the condition of the employer is such
       that immediate hospitalization is necessary, the hospital
       services shall be rendered at the time of the emergency.

                                       V.

             "This contract shall not cover any injuries or acci-
       dents that happened before or were in existence at the time
       of the signing of this contract.




             Article 4716 of Vernon's Annotated Revised Civil Statutes of
Texas of 1926 reads in part as follows:

             "    . An accident insurance company shall be
       deemed.to*bs a corporation doing business under any
       charter involving the payment of money or other thing
       of value, conditioned upon the injury, disablement or
       death of persons resulting from traveling or general
       accidents by land or water . . .
             " . . . A health insurance company shall be deem-
       ed to be a corporation doing business under any charter
       involving the payment of any amount of money, or other
       thing of value, conditioned upon loss by reason of dis-
       ability due to sickness or ill-health . . .a

             It will be noted that the above definitions involve two
things. First, the payment of money, or other thing of value, and second,
loss through injury, disablement or disability by accident, sickness or
ill-health.
Hon. 0. P. Lockhart, Page 4 (o-6101)



       There are no Texas decisions setting forth what may or may not be
included within the above quoted provisions of Article 4716, but there
are several well-known and generally accepted definitions of insurance
and statements of what may be inoluded in a contract or agreement of in-
mrance, each and all of which can be, end were intended to be, included
within said quoted provisions, and some of these we desire to set out here.

             "The word 'insurance' is defined in Texas Juris-
       prudence, Vol. 24, page 660, as followsr

            "tInsurance is a word of comprehensive and varied
      meaning., In a general sense the term signifies an agree-
      ment, for a consideration, to pay a sum of money upon the
      happening of a particular event or contingency, or indem-
      nify for loss in respect of a specified subject by speci-
      fied perils; in other words, an undertaking by one party,
      usually called the insurer, to protect the other party,
      generally designated as the insured or assured, from loss
      arising from named risks, for the consideration and upon
      the terms and under the conditions recited.'"

       Couch on Insurance, Vol. 1, Sec. 2, p- 3, defines "insurance" as
follows:

             "The terms 'assurance' and 'insurance' are used in-
       terchangeably, although the.former is seldcPnemployed.
       Strictly defined, insurance, except as to life and accident
       covering death, and which, as hereinafter shown, arc not
       strictly contracts of indemnity, is a contract whereby one
       for a consideration agrees to indemnify another for liabil-
       ity damage, or loss by perils to which the subject insured
       may be exposed. In life or accident insurance it is the
       life or health of the person that is the subject of the con-
       tract. A much cited and often quoted definition of insurance
       is as follows: 'A contract of insurance is an agreement by
       which one party, for a consideration (which is usually paid
       in money either in one sum or at different times duringthe
       continuance of the risk), promises to make a certain payment
       of money upon the destruction or injury of something in which
       the other party has an interest. In fire insurance and in
       marine insurance the thing insured is property; in life or
       accident insurance it is the life or health of the person.'
       In a general sense 'insurance' is a contract, for a oonsider-
       ation, to pay a swn of money upon the happening of a particu-
       lar event or contingency, or indemnity for loss in respect
       of a sp<,cifiedsubject by specified perils; that is, an under-
       taking by one party to pretect the other party from loss aris-
       img frclla
                nssaedrisks, for the consideration and upon the terms
       and under the conditions recited. . 0 On
Hon. 0. P. Lockhart, Page 5 (o-6101)



           Cooley~s Briefs on Insuranoe, 2nd Ed., Vol. 1, p. 7, also lays
down the following rule:

            "The primary requisite essential to a contract of
      insurance is the presence of a risk of,loss (First Nat.
      Bank v. National Surety Co. 226 N.Y. 469, 127 N. E. 479,
      reversing 162 App. Div. 262, 169 N. Y. S. 774). The
      insurer, in return for a consideration paid to him by the
      insurad, assmes this risk, and when such a risk is asslilp-
      ed by one of the parties to the contract, whatever form
      the contract may take, it is in fact a contract of insur-
      ance. Risk is essentially the subject of the contract.

             An analysis of the above definitions and statements will show
that the eseantial elements of an insurance contract are :(l) an insurer;
(2) a consideration; (3) a person insured or his beneficiary; and (4) a
haeard or peril insured against whereby the insured or his beneficiary may
suffer loss or injury. In our opinion, each of these essential elements
is present in the contract here under consideration, in that, the physici-
ans named therein are the insurer, since they agree to render and furnish
the services and other things of value therein named and required under
the terms thereof; the ~monthly payment constitutes a consideration; the
employer is the person injured: and the hazard or peril insured against is
the payment of medical, hospital and other costs incident to an accident
or ill-health when and if said employer should bs injured or in ill-health.
But the contention may be made that, since such physicians render their
own personal services, this in itself would make such a contract one for
personal services, instead of insurance, without regard to the fact that
such physicians also agree in said contract to furnish the various other
services and things provided for therein, Thendecisions of our courts,
however, in dealing with similar though different situations, are to the
contrary.

             In the case of Rational'Auto Service Corp. Y. State, 55 S. W.
(Zd) 209, writ dismissed, the Austin.Court of Civil Appeals was dealing
with a situation where a corporation had issued to its members a membership
certificate which provided, among other things, that for annual dues of $25.00
it would cause to be repaired in its membership garages during that year any
damage to the members' automobile caused by an accident not less than $7.50
nor more than $250.00. 'Iherecord also discloses that the corporation opsr-
ated in accordance with the provisions of the certificate. In holding said
contract one of insurance, the court said:
             II      In the instant case we thing it clearly appears
       that thi &a;pose of the contract made by appellant was, for a
       fixed consideration, to indemnify the holder of the certificate
       against loss resulting from accidental damage to his car with-
       in the limits fixed by the oertificate, and that it constituted
       an insurance contract under the rules above announced."
Ron. 0. P. Lockhart , page 6 (o-6101)



       In the case of Guardian Burial AssIn. v. Rodgers, 163 S.W. (2d)
851, the Court held the certificate there under consideration.to be a
policy of insurance, the following merchandise, services, etc., being
what was agreed to be furnished and the agreement to furnish same was
made the basis of said holding:

            '1. . . An embossed cloth covered silk lined cypress
      casket, embalming and prepation of the body, funeral coach,
      two funeral cars, use of funeral chapel, transferring re-
      mains, burial permit, door badge, pallbearer gloves, press
      notice, funeral equipment for any denomination, and music
      furnished at funeral home chapel, . . ."

       It is true that there have been decisions in other state,edealing
with the furnishing of services some of which have been held not to be
insurance, but none of said opinions have been where the contract was like
that here under consideration. We desire to,here quote from a brief pre-
pared sometime ago by Assistant Attorney General R. Dean Moorhead when this
question was under consideration under a different set of facts:

       "It is true that certain contracts for contingent services
       have been held not to constitute insurance. Generally
       these involve merchandising sohermesdesigned to promote the
       business of the pramisor. Thus, an agreement by a glazier
       to replace free all plate glass installed by him if it
       were broken within a given period has been heldto be a
       contingent service agreement rather then a contract of in-
       surance, Moresh Y. O'Regan, 120 N. J. Eq. 534, 187 Atl. 619
       (1938), (and on exactly the same state of facts the con-
       trary has been held, People v. Roschli, 275 N. Y. 26, 9 N.
       E. (2d) 763 (1937) ). Likewise a promise to a vendor of
       lightning rods to repair any dsmage if lightning struck a
       house equipped with one of his rods has been held not to
       be insurance, Cole v. Haven, 7 N. W. 383 (Iowa, 1880), In
       Pennsylvania a bicycle dealer‘s promise to repair and if
       necessary to replace bicyclespurchased from him was held
       not to be insurance, Comm. Y. Provident Bicycle Ass'n. 178
       Pa. 636, 36 Atl. 197 (1897) but in Delaware an association
       of bicycle owners made the same promise to their members
       and was held to be in the insurance tisiness, in re Sole-
       bury Rut. Protective Society, 3 Del. Co. R. 139 (1885).
       In Ohio a tire dealer's promise to repair and, if necessary,
       replace tires purchased from hii within a specified period
       was held to be insurance, State Y. Western Auto Supply Co.,
       134 Ohio St. 163, 16 N. E. (gd) 256 (1938) and the same con-
       cl sion was roached in New York with respect to a jeweler's
       promis;~;
               relating to watches purchased from him, Ollendorff
       llBtchCo. vi Pink,-279 N. Y. 32, 17 N. E. (2d) 676 (1938).
       Likewise, in New York the Attorney General has ruled that a
       hospital's promise to furnish free service in maternity
       cases if the anticipated infant turns out to be twins con-
       stitutes insurance.
                . --




    Hon. 0. P. Lockhart, Page 7 (o-6101)



           "Thus it can be seen that not all courts accept the
           !oontingent service -- insurance' distinction and
           those that have accepted it have~oonfined it to cases
           where the promised servioe is olosely related to and
           is inoidental to the main business of the promiser.
           So Par as I know, Texas oourts have never attempted to
           draw the distinction and, in the %tional huto Service
           Cbrp. case, supra, have expressly rejected it.

           "Moreover, ep is pointed out in Vanoe on Insurance (1930)
           61, Ia company really carrying on an insurance business
           will not be allowed to masquerade as a serviae organiza-
           tion.' This is well illustrated by burial associations
           which promise not a sum of money upon death but rather a
           prescribed funeral and trimmings. Here again no money goes
           to the pramisee (in fact a theorist could even question
           whether he receives services) yet such organizations have
           uniformly been held to be in the insurance business and
           are so recognized by Texas law."

           There is also a line of oases which hold to be insurance a contract
    issued to physicians in consideration of a specified yearly contribution,
    guaranteeing that, in ease they were sued for damages for civil malpractice,
    a local attorney would be employed, in whose seleotion said physician should
    have a voice, who, with the physicians' attorney, would defend the case with-
    out expense to the physicians to the extent of the exhaustion of the named
         relieving such physicians from liability for costs and attorney'sfee
23; ??hat   extent. Physicians Defense Company v. Cooper, State Insurance Comm.
    199 Fed. 576. The Court there held as ,followsr

                 "Such a oontraot, in our opinion, cannot be classed
           as a oontract for personal services. The ccmpany is not
           itself an attorney, and does not undertake the defense as
           such. What it does undertake is, incase of suit, to em-
           ploy a local attorney, in whose selection the holder shall
           have a voioe, who, with the company's attorney, will defend
           the case, and to relieve the holder from the expense there-
           of, an expensr which must follow the happening of the very
           contingency provided against. Not only this, but the capany
           must relive the holder of paying the costs of suit. Suppose
           the contract had been to repay to the holder whatever sums,
           not exceeding $5,000, he should be required to pay out for
           attorneys and costs in case of suoh litigation. Could there
           be aw question that there would bs a oontraot of insurance?
           Fe think not. Can it change the charaoter of the contract on
           this respect that it purporbs,to hold the holder harmless
           agains':the payment of such expenses and costs? The contract,
           reduced to its sjmplsst idea, is but an agreement to pay the
           expenses and,costs that the holder would have to pay in the
           contingency speoified. This is indemnity pure and simple,
           and with whatever verbiage the aontract may be olothed it
                                                                . . _,




Honorable 0. P. Lookhart, Page 8 (o-6101)



           does not serve to oover its real purpose, which is one to
           indemnify the holder against damage and liability for at-
           torney's expenses and costs of defense, in the event he is
           sued fQr malpraotioe.

                  "It is faulty logic to say that this is not a loss,
           damage,.or liability of the contract holder, premising
           that he does not incur it, and oonoluding that it is the
           liability of the Defense Compaq*    The loss, damage, or'
           liability follows the suit for malpractice? and, were it
           not for the contract of the Defense Company, the holder
           must bear it. Whose loss, damage, or liability would it
           then be? That of the person sued, of course0 It is this
           very burden which the Defense Ccmpa~ agrees to bear in
           case the wntingenoy of the holder being sued happens, and
           this is insuring the holder against the risk dependent upon
           the oontingenoy,. Looking on the other side, if this be a
           contract for personal serviaes, why limit the amount of the
           services to be rendered in dollars and cents? Attorneys do
           not take contraot for defending parties sued in that way.
           How peculiar it would be for an attorney to say: 'I will
           engage in your defense $5,000 worth.' It would follow that
           when the fund was exhausted the attorney would quit, whether
           the case was brought to a close or not. The very uncertain-
           ty of the amount to be paid by the Defense Company to meet
           the exigenoy oontraoted against is persuasive that the oon-
           tract is not one of hiring, but one rather of indemnity.
           And such is our conolusion. See Physicians' Defense Co. vg
           O'Brien, 100 Dinu. 490. 111 N.W. 396. The reasoning of the
            court in this case is both cogent and persuasiveen

                  A like holding was made by the Court of Appeals of Kentucky in
      the case of Allin V~ Motorist's Alliance of America, Inc. 29 &We (Zd) 19,
      which involved the employment of an attorney to perform various servioss
      for owners of automobiles who executed such wntraots, and the court held
      that said corporation was engaged in insurance even though it had agreed
      to furnish only personal servioes~ We quote therefrcanthe following8

                  "It is not good logic to argue that the furnish-
            ing of an attorney to represent the owner of an autmao-
            bile in his defense in oourt aotions is not a loss in-
            demnified against. Insurance companies are authorized
            to indemnify against such losses as arise out of the
            ownership, operation, or maintenance of an automobile,
            If, in the operation of his automobile, he has a loss
            resulting in a claim against him, the oolleotion of which
            is prosecuted in a court, he must have an attorney and
            pay for his servioes, and it xuuuldbs futile to argue
            that the contract in question does not indemnify him a-
            gainst a loss. If it provided for the payment of an
               _ I.   ”




Hon. 0. P. Lockhart, Page 9 (o-6101)


            attorney fee not to exceed a certain sum when the owner of
            the automobile should :~behaled;into court by reason of
            something growing out of his ownership or operation of his
            automobile, we believe that no one would argue that it was
            not insurance. The difference is one of form and not of
            substanoe. The oontraot provides against any loss growing
            out of the payment of attorney fees by the simple'empediant
            of agreeing to furnish and pay the attorney. The above
            quotation from the statute was inserted by chapter 14 of the
            Acts of 1922. Its purpose mas to authorize the owner of an
            automobile to insure against such losses asarise out of the
            ownership, operation, or maintenanoe of the same. The oon-
            traot holder is required to do nothing other than to notify
            appellee that he needs an attorney, and, upon such notifioa-
            tion, he is relieved of all expenses inoident to the employ-
            ment of an attorney to represent him in his defense. It is
            true that the contract does not provide for tie payment of
            any sum directly to the oontractee, but it does provide for
            the relieving of the oontraotee of the expanses of the map10 -
            ment of an attorney. The attorney is but the agent represen-
            ting the contractee in the oase in court, and payment to him
            directly cannot well be distinguished fromtie act of paying
            the contraotee directly and his paying the attorney who may
            represent him."

                  In the instant oase the oontraot is to be made direct between
    the cmnployerand the physician, but we do not see where that oanmake any
    difference in the ultimate result, or change the contract from one of insult,
    an08 to merely one of personal services, since it seems clear that the pur-
    pose of the contract is to provide for indemnification against the expenses
    of illness or injury as provided for in said contract rather than to provide
    for the services of the phvsioians. It is our opinion. therefore. that
    under the facts sulmitted khe form of agreement h que.&ion is an'insuranoe
    contraat subjecting the issuance  of it to the supervision of the Board of
    Insurance Commissioners.

                   In further-support of this conclusion, your attention is direct-
    ed to the fact that the Regular Session of the Fofty-fifth Legislature, (H. B.
    893, Ch. 257, p. 522 of the Acts thereof), in amending Sec. 6 of H.B. No. 303,
    being Ch. 245, p. 856 of the Acts of the R gular Session of the Forty-third
    Legislature as amended by H. B. No. 373, Cfi. 264, pe 651 of the Acts of the
    Regular Session of the Forty-fourth Legislature, (Art. 4859f, Vernon's Anne
    Rev. Civ. Stat. of Texas), included in said amendment the following provisionr
                      ". . .

                  "?T:o
                      law of this State pertaining to insuranoe shall
            bs construed to apply to the establihsment and maintenanoe
            by individuals, assooiations, or oorporations of sanatori-
            mas or hospitals for the reception and care of patients for
Hon. 0. P. Lookhart page 10 (o-6101)




             the medical, surgioal, or hygienic treatment of
             arIyand all diseases, or for the dnstruotion of
             nurses in the care and treatment of diseases and
             in hygiene, or for any and all suoh purposes,
             nor to the furnishing of any or all of such serv-
             ices, cars of, instructionin, or in conneotion with
             any such institution, under or by virtue of any con-
             tract made for such purposes with residents of the
             county inw hioh such sanatorimn or hospital is
             located. . . .*

             Said Section 6 was again amended in 1939 (H.B, No. 626, Ch.
      7, p. 414, of the Acts of the Regular Session of the Forty-sixth
      Legislature) and in 1941, (H#B. 996, Ch. 535, p* 860 of the Acts of
      the Regular Seasion of the Forty-seventh Legislature) but said
      said above quoted provision was left out of said amendments. This
      action of the Legislature clearly shows that it was not its inten-
      tion to except such contracts as that here under oonsideration from
      the insurance laws of this State, as well also that its opinionwas
      that the laws of this State pertaining to insuranoe do include such
      oontraots.

             Trusting that this satisfactorily answers your inquiry, TYB
      are

                                            Yours verytruly,

                                        ATTORNEY GENERAL OF TEXAS

      APPROVRD SET 19, 1944
      /s/GROWR   SELLSRS
      ATTORKEY GENERAL OF TEXAS
                                                 Jas. W. Bassett
                                                 Jas. He Bassett
                                                     Assistant

                                                    APPROVED
                                                Opinion Committee
                                                    By BWB
                                                  Chairman
