                            THE        A-m-0-y                     GENERAL
                                              OF      TEXAS


   w’ILL        WILSON
ATl’O-                GENERAL                    August    25.   1960



         Hon. Penn J. Jackson,      Chairman               Opinion      No.   WW -920
         State Board of Insurance
         International   Life Building                     Re:   Whether    a Termite      Service
         Austin,   Texas                                   contract   and a guarantee       bond is a
                                                           contract   of insurance     which would
                                                           subject   companies     issuing    same
                                                           to the provisions    of the Texas
         Dear   Mr.    Jackson:                            Insurance    Code.

                  You have requested       our opinion on the question       of whether  a given
         termite   service contract     submitted    with your request     is a contract   of insur-
         ance.   Your concern    arises    by virtue    of the fact that none of the companies
         issuing  such contracts    are licensed     under the Texas     Insurance    Code.    We
         answer   your question   in the negative.

                   In essence,    the contract    provides   that for a given consideration     the
         issuing    company    will treat the building     or buildings   covered  by such contract.
         It further   provides    that should termites      recur   during the period   covered   by
         the contract    the premises     will be treated     again free of charge    and guarantees
         the purchaser      against   any termite    damage    during such period.

                   It is obvious   that the primary      inducement     to this contract     is the exter-
         mination     of termites    through   the treatment    afforded     by the issuing    company.
         It is this service     which it is in the business      of selling.     The guarantee     is in
         the nature     of a promise     that such treatment     is so effective    that no termites
         will reappear      during the stated period       and hence that no termite        damage    will
         OCCUS.     The situation     is analogous   to that confronting      the Court in State v.
         Standard     Oil Co,, 35 N.E.Zd      437, involving   a tire warranty.       The Collrtere
         said:

                              &I
                                . . 0 Relating   to the sale of commodities,        a
                         warranty     has been defined     as a statement     or repre-
                         sentation    having to di, with the kind, quality,       variety
                         or title of the goods sold.       On the other hand, a num-
                         ber of courts      have announced     the rule that if the vendor
                         of goods guarantees       them against     hazards    disconnected
                         with defects     in the articles   themselves,     such guaranty
                         is equivalent     to a contract   of insurance.

                              G/j
                                o o * We find difficulty    in construing    this agree-
                         ment as more than a representation            that the tires   being
                         sold are so well and carefully        manufactured      that they
                         will give satisfactory     service    under ordinary      usage for
Hon.   Penn     J. Jackson,    page   2    (WW-920)




                a specified   number       of months,   excluding   happen-
                ings disassociated        from  imperfections     in the tires
                themselves.”

         We can find no case directly            in point and the line between     a contract
which is primarily        insurance      and one which is construed     as a warranty     is
shadowy     at best.     However,      as a general   rule, the courts  examine     the con-
tract as a whole,       including    its motivating    factors, to determine    its primary
characteristic       or fundamental       purpose.    As stated in Transportation      Guarantee
Co. V* Jellin,    174 Pac.2d      625:

                     “Absence     or presence    of assumption     of risk
                or peril  is not the sole test to be applied      in deter-
                mining.   I .status.    The question,   more broadly.      is
                whether,   looking    at the plan of operation    as a whole,
                ‘service’   rather   than ‘indemnity’    is its principle
                object and purpose.‘”

          The    principle    purpose  of the Contract in question   is the service   of
eradicating      termites,    not the indemnity  for damages    caused   in the event they
recur.

                                             SUMh4ARY

                             The specific   termite   service   contract
                     and guarantee   bond submitted     with the opinion
                     request  is not a contract   of insurance.

                                                      Respectfully     submitted,

                                                      WILL    WILSON
                                                      Attorney   General      of Texas




                                                      BY

RVL/pe                                                     Assistant   Atto

APPROVED:

OPINION       COMMITTEE:

W. V. Geppert,   Chairman
J. C. Davis
C. K. Richards
Robert  H. Walls

REVIEWED    FOR THE ATTORNEY                    GENERAL
BY:      Houghton Brownlee, Jr.
