                              November      9,   1971


Honorable Bob Bullock                    Opinion No.     M-994
Secretary of State
State of Texas                           Re: May the Secretary of State issue
Capitol                                  a certificate of authority to conduct an
Austin, Texas 78711                      auto club service business, which asso-
                                         ciation will contract to pay certain
Dear Mr. Bullock:                        losses under specified circumstances?

       Your immediate predecessor  in office has requested an Attorney General’s
opinion concerning the captioned matter.   His request states, in part, the
following:

     “Should the Secretary of State issue a Certificate of Authority
     to conduct an automobile club service business when the services
     are stated to be,

     “(a) The Association will seek out knowledgable insurance agents
     who sell policies deemed by your association trustees to be most
     beneficial to its members and will encourage said agents to solicit
     OCAW members,       explain automobile insurance and advise members
     on their insurance programs.     The Association itself will not solicit,
     promote, advertise,    or process any insurance policy or application;

      “(b) The Association will collect and hold membership fees for you
      which will be available to you to draw upon 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 to pay
      the increased cost of insurance when a policy must be obtained at
      higher than normal rates promulgated by the State Board of Insurance;

      “(c) The Association wi,ll loan or advance money to you for the above
      purposes when the amount held for your account is insufficient;

      “and when the membership     fee is variable      from $9.00 to $150.00.”




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Honorable     Bob Bullock,   page 2            (M-994)


      The request further states “It is not clear whether the services to
members and the variable membership fees. . . are authorized by Article
1528d. Vernon’s Annotated Texas Statutes.”

       Article 1528d, Vernon’s        Civil Statutes,    entitled Automobile   Club
Services Act, reads, in part,         as follows:

      “Sec. 2. (a)

      “Automobile Club’ shall mean any 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 servi,ces as com-
      munity traffic safety service,    travel and touring service, theft
      or reward service,    map service, touring service,     emergency
      road service,   bail bond service and legal fee reimbursement
      service in the defense of traffic offenses, and the purchase of
      accidental injury and death benefits insurance coverage from a
      duly authorized insurance company.

      “(b) ‘Person’ shall mean any person, firm, partnership, corpora-
      tion or association which conducts an Automobile Club Service
      business in this State.” (Emphasis added)
      11. . .

      “Sec.     8. (a)

      “Automobile Clubs operati~ng hereunder shall make no reference to
      their certificate   of authority or approval from the Secretary of State
      in any advertising,    circular,  contract or membership card nor shall
      such Automobile Clubs advertise or describe their services in such
      a manner as would lead the public to believe such services include
      automobile insurance.




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Honorable   Bob Bullock, page 3        (M-994)



       Paragraph (b) of the request letter and the documents attached
thereto disclose that the association will include in its charter the power
“to collect and hold membership fees” which will be available to the member
to draw upon “to reimburse an insurance carrier the amount of any deducti-
ble it pays out in settlement of claims under a policy of deductible automo-
bile insurance”.    The association also obligates itself to honor the member’s
draft in an amount sufficient to cover the increased cost of insurance when
or if the member is placed in a high risk category.      The amount of the
membership fee may vary from $9.00 to $150.00, “depending on the location
and use of the member’s automobile, the age, sex, and driving record of
the driver and ot:her relevant data”.   No provision is made for the return of
the membership fees to the member upon termination of his membership,         and
it is apparent that such fees are retained by the association.

       Our opinion is that paragraph (b) of the above quoted charter provisions,
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 Insurance Code, and that the club is not authorized by Article
1528d to engage in the insurance business.

       An insurance contract 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.    Attorney General’s Opinions Nos. O-4620 (1942) and
WW 1475 (1962), and authorities discussed therein.      When the association,
in consideration   of a membership fee, obligates itself to honor the member’s
draft for the amount of a deductible, which otherwise would be lost by the
member, in the event of a collision, the association is engaging in the insurance
business.    The fact that the member draws on the association to reimburse
another insurance carrier,     who in turn adds the same amount to the insurance
benefits which it pays the member, does not affect the results.     In other words,
the circuitous manner by which the benefits are paid by the association does
not render it any less an insurer.     Likewise, the association is engaging in the
insurance business when it obligat:es itself to pay the increased cost of insurance
when or if the member is placed in a high risk category.




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    Honorable    Bob Bullock, page 4          (M-994)



           For the foregoing reasons,  it is the opinion of this office that the
    services to be provided to its members by the association in question
    would render the association an insurer,    in violation of Article 1.14 of
    the Texas Insurance Code and that such a club is not authorized by
    Article 1528d to render such services.

            Regarding the variable membership fee, our opinion is that no
    vice is inherent in such variable fees, since the Automobile Club Service
    Act does not require that fees be uniform.      However, it is clear that the
    reason for the variation in fees grows out of the variation in risks which
    the club, operating as an insurer,    assutres by reason of the contract with
    the member.      In a case where an automobile club operates in keeping with
    the statutes above. mentioned there is no reason why it could not charge
    a different fee for a different service,   but insurance is not an authorized
    service of such clubs.

                                    SUMMARY

                 No certi~ficate of authority should be issued by the
           Secretary of State to an automobile club whose services
           constitute an insurance business under the facts presented,
           but variable membership fees may be charged for legally
           authorized services     under Article 1528d, V.C. S.
                                                          , ‘:I
                                                     Yours very truly,
                                                      /            n




    Prepared    by Ralph Rash
    Assistant   Attorney General

    APPROVED:
    OPINION COMMITTEE

    Kerns .l’aylor,    Chairman
    W. E. Allen,      Co-Chairman




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Honorable   Bob Bullock, page 5       (M-994)



Harold Kennedy
John Banks
Ben Harrison
Houghton Brownlee

SAM MCDANIEL
Staff Legal Assistant

ALFRED WALKER
Executive Assistant

NOLA WHITE
First Assistant




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