Honorable 0. P. Lockhart, Chairman

Board of InsuranceCommissioners Austin, Texas

Dear Sir: Opinion NJ. O-6101 Rer Underthe facts submitted is theform of agreement in question
an insurance contract subjeating the issuance of it to the supemision of the Boardof Insuranoe Commission?

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

"CONTRACTFOR PERSON& MEDICAL.SERVICES

"COUNTY OF P

"Thismemoranda 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 considerationof the sum of Dollars paid by the employer onthe day of each month to the physicians at the pbysioian'office in

, Texas, said physiciansagree to render the following servioesto and for the employer, subject to the limitations containedherein, to-wit:

"L. All office calls, including nursing oare or treatments that the employer shall necessarilyneed, not exceedingthree 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 generalnursing
care and hospital servicefor the period the employer shall necessarilybe confinedtherein, not exceeding twenty-one (21) days hospital service on any one period of sicknessor accident in one twelvemonth period following thedate 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 professionaland non-professional employees of said physicians.

"D. Use of operating room when employer is a bed patient for a major orminor operation.

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

"F. Maternity servicestill be providedunder this contractfor a maximum of five days, includingnursery care of newlwrn, if employerhas kept this contract in continuous force for one year or more irmnediately prior to such hospital confinement.

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

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

III.

"A. None of the services.heretoforementiond shall be performedby saidphysiciansuntil saidcontract has'been in force and effect for thirty (30) days.

"B. This contractdoes not cover drugs; supplies; services for incurable cases,ambulatory patients, semiinvalidism, self-destruction3losses sustained inviolation of the law; cases caning under Hospital Insuranceor,

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

under provisions of any Workmen's Compensationor Employer's Liability Insurance. This contract does not cover abortion; syphilis,or complicationsarising therefrom,virulent or contagiousdiseases3 rest cures3mental 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 maployer shallwait until facilitiesare available for any hospitalservices povided for in this contract;provided, however, that if the conditionof the employer is such that immediatehospitalization is necessary,the hospital services shall be rendered at the time of the emergency.

V.
"This contract shall not cover any injuries or accidents that happenedbefore or were in existenceat 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 corporationdoing business under any charter involving the payment of money or other thing of value, conditionedupon the injury, disablement or death of persons resulting from traveling or general accidentsby land or water

. . . "

. . .A health insurance company shall be deemed to be a corporationdoing business under any charter involvingthe payment of any amount ofmoney, or other thing of value, conditionedupon loss by reason of disability due to sickness or ill-health

. . .a

Itwill be noted that the above definitions involve two things. First, the payment ofmoney, or other thing of value, and second, loss through injury, disablementor disabilityby accident, sickness or ill-health.Hon. 0. P. Lockhart, Page 4 (o-6101)

There are no Texas decisions setting forthwhat may or may not be includedwithin the above quoted provisions of Article 4716, but there are severalwell-known and generallyaccepted definitions of insurance and statements of what may be inoluded in a contractor agreement of inmrance, each and all ofwhich can be, end were intended to be, included within said quoted provisions,and some of these we desire to set out here.

"Theword 'insurance'is defined in Texas Jurisprudence,Vol. 24, page 660,as followsr

"tInsurance is aword of comprehensiveand varied meaning., In a general sense the term signifiesan agreement, for a consideration,to pay a sum of money upon the happening of a particular event or contingency,or indemnify for loss in respect of a specified subjectby specified perils; in otherwords, an undertaking by one party, usually called the insurer, to protect the other party, generally designatedas the insured or assured, from loss arising from named risks, for the considerationand upon the terms and under the conditionsrecited.'"
Couch on Insurance,Vol. 1, Sec. 2, p- 3, defines "insurance"as follows:
"The terms 'assurance'and 'insurance'are used interchangeably,although the.former is seldcPn employed. Strictly defined, insurance,except as to life and accident coveringdeath, and which, as hereinafter shown, arc not strictly contractsof indemnity, is a contractwhereby one for a considerationagrees to indemnifyanother for liability 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 contract. 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 continuanceof the risk), promises tomake a certainpayment of money upon the destruction or injury of something in which the other party has an interest. In fire insuranceand 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 oonsideration, to pay a swn of money upon the happening of a particular event or contingency,or indemnity for loss in respect of a sp<,cified

subjectby specified perils; that is, an undertaking by one party to pretect the other party from loss arisimg frclla

nssaed risks, for the considerationand upon the terms and under the conditionsrecited.

. 0 OnHon. 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 contractof insurance is the presence of a risk of,loss (FirstNat. 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 considerationpaid to him by the insurad, assmes this risk, and when such a risk is asslilped by one of the parties to the contract,whatever form the contractmay take, it is in fact a contract of insurance. Risk is essentiallythe subject of the contract.

An analysis of the above definitionsand statementswill show that the eseantial elements of an insurance contractare :(l)an insurer; (2) a consideration; (3) a person insured or his beneficiary;and (4) a haeard or peril insured againstwhereby the insured or his beneficiarymay suffer loss or injury. In our opinion, each of these essential elements is present in the contracthere under consideration, in that, the physicians 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~monthlypayment constitutesa consideration;the employer is the person injured:and the hazard or peril insured against is the payment of medical, hospitaland other costs incidentto an accident
or ill-healthwhen and if said employer should bs injured or in ill-health. But the contentionmay bemade that, since such physicians rendertheir
own personal services, this in itselfwould make such a contractone for personal services, instead of insurance,without regard to the fact that such physiciansalso agree in said contract to furnish the various other services and things provided for therein, Then decisions of our courts, however, in dealingwith 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.Courtof CivilAppeals was dealing with a situationwhere a corporationhad issued to itsmembers a membership certificatewhich provided, among other things, that for annual dues of $25.00 itwould cause to be repaired in itsmembership garagesduring that year any damage to themembers' automobile caused by an accident not less than $7.50
nor more than $250.00. 'Ihe record also discloses that the corporationopsrated in accordancewith the provisions of the certificate. In holding said contractone of insurance, the court said:

II In the instant casewe thing it clearlyappears that thi &a;pose of the contractmade by appellantwas, for a fixed consideration,to indemnify the holder of the certificate against loss resulting from accidental damage to his carwithin the limits fixed by the oertificate,and that it constituted
an insurance contractunder the rulesabove announced."Ron. 0. P. Lockhart , page 6 (o-6101)

In the case of Guardian Burial AssIn. v. Rodgers, 163 S.W. (2d) 851, the Courtheld the certificatethere under consideration. to be a policy of insurance, the followingmerchandise, services,etc., being what was agreed to be furnishedand the agreement to furnish samewas 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 remains, burial permit, door badge, pallbearer gloves,press notice, funeral equipment for any denomination,andmusic furnished at funeral home chapel,

. . ."

It is true that there have been decisions in other state,e dealing with the furnishing of services some ofwhich have been held not to be insurance, but none of said opinions havebeen where the contractwas like that here under consideration. We desire to, here quote from a brief prepared sometimeago by AssistantAttorney General R. Dean Moorhead when this questionwas under considerationunder a different set of facts:

"It is true that certain contracts for contingent services have been held not to constitute insurance. Generally these involvemerchandising sohermes designed to promote the business of the pramisor. Thus, an agreement by a glazier to replacefree all plate glass installed by him if it
were broken within a given period has been heldto be a contingent serviceagreement rather then a contractof insurance,Moresh Y. O'Regan, 120 N. J. Eq. 534, 187 Atl. 619 (1938), (and on exactly the same state of facts the contrary has been held, Peoplev. 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 strucka house equippedwith one of hisrods has been held not to be insurance,Colev. Haven, 7 N.W. 383 (Iowa,1880), In Pennsylvaniaa bicycle dealer‘s promise to repair and if necessary to replace bicyclespurchased from himwas held not to be insurance,Comm. Y. Provident BicycleAss'n. 178 Pa. 636, 36 Atl. 197 (1897)but in Delaware an association of bicycle ownersmade the same promise to theirmembers and was held to be in the insurance tisiness, in re Solebury 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 specifiedperiod was held to be insurance, State Y. Western Auto Supply Co., 134 Ohio St. 163, 16 N. E. (gd) 256 (1938)and the same concl sionwas roached inNew York with respect to a jeweler's promis;~;

relating to watches purchased from him, Ollendorff llBtchCo.vi Pink,-279N. Y. 32, 17 N. E. (2d) 676 (1938). Likewise, in New York the Attorney Generalhas ruled that a hospital's promise to furnish free service inmaternity cases if the anticipated infant turns out to be twins constitutes insurance.. --

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

"Thus it can be seen that not all courts accept the !oontingentservice -- 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 businessof the promiser. So Par as I know, Texas oourts have never attemptedto 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 insurancebusiness will not be allowed to masquerade as a serviae organization.' This is well illustratedby burial associations which promisenot 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 organizationshave uniformlybeen held to be in the insurancebusiness and are so recognizedby Texas law."

There is also a line of oaseswhich hold to be insurancea contract issued to physicians in considerationof a specifiedyearly contribution, guaranteeingthat, in ease they were sued for damages for civilmalpractice, a local attorneywould be employed, in whose seleotion said physician should have a voice, who, with the physicians'attorney,would defend the casewithout 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 Companyv. Cooper, State InsuranceComm. 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 itselfan attorney,and does not undertake the defense as such. What it does undertake is, incase of suit, to employ 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 thereof, an expensr whichmust follow the happening of the very contingencyprovided against. Not only this, but the capany must relive the holder of paying the costs of suit. Suppose the contracthad been to repay to the holder whatever sums, not exceeding $5,000, he shouldbe requiredto pay out for attorneys and costs in case of suoh litigation. Could there be aw question that there would bs a oontraotof insurance? Fe think not. Can it change the charaoterof the contract on this respect that it purporbs,tohold 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 holderwould have to pay in the contingency speoified. This is indemnitypure and simple, and with whatever verbiage the aontractmay 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 attorney'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 contractholder, 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 formalpractice? and, were it not for the contract of the Defense Company,the holder must bear it. Whose loss, damage, or liabilitywould 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 dependentupon the oontingenoy,.Looking on the other side, if this be a contract for personal serviaes,why limit the amount of the servicesto be rendered in dollars and cents? Attorneys do not take contraot for defending parties sued in that way. How peculiar itwould be for an attorney to say: 'Iwill engage inyour defense $5,000worth.' It would follow that when the fund was exhausted the attorneywould quit,whether the case was brought to a close or not. The very uncertainty of the amount to be paid by the Defense Company to meet the exigenoy oontraotedagainst ispersuasive that the oontract 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 cogentand persuasiveen

A like holdingwas made by the Court of Appeals of Kentucky in the case of Allin V~ Motorist'sAlliance of America, Inc. 29 &We (Zd) 19, which involved the employment of an attorney to performvarious servioss for owners of automobileswho executed such wntraots, and the court held that said corporationwas engaged in insuranceeven though it had agreed to furnish only personal servioes~ We quote therefrcan the following8

"It is not good logic to argue that the furnishing of an attorney to represent the owner of an autmaobile in his defense in oourt aotions is not a loss indemnified against. Insurance companiesare authorized to indemnifyagainst 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 oolleotionof which is prosecuted in a court,he must have an attorney and pay for his servioes, and itxuuuldbs futile to argue that the contract in question does not indemnifyhim against 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 :~be haled;into court by reason of somethinggrowing out of his ownership or operation of his automobile,we believe that no onewould argue that it was not insurance. The difference is one of form and not of substanoe. The oontraotprovides 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 statutewas insertedby chapter 14 of the Acts of 1922. Its purposemas to authorize the owner of an automobile to insure against such losses asarise out of the ownership, operation, ormaintenanoe of the same. The oontraot holder is required to do nothing other than to notify appelleethat he needs an attorney, and, upon such notifioation, he is relieved of all expenses inoident to the employment of an attorney to representhim in his defense. It is true that the contractdoes not provide for tie payment of any sum directly to the oontractee,but it does provide for the relieving of the oontraoteeof the expansesof the map10 - ment of an attorney. The attorney is but the agent representing the contractee in the oase in court, and payment to him directly cannotwell be distinguishedfromtie act of paying the contraoteedirectly and his paying the attorneywho may represent him."

In the instant oase the oontraot is to be made direct between the cmnployer

and 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 purpose of the contract is to provide for indemnificationagainst the expenses of illness or injuryas provided for in said contractrather than to provide for the services of the phvsioians. It is our opinion. therefore.that under the facts sulmittedkhe form of agreement h que.&ion is an'insuranoe contraat subjectingthe issuance of it to the supervision of the Board of InsuranceCommissioners.

ed tothe In further-supportof this conclusion,your attention is directfact 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-fourthLegislature, (Art. 4859f,Vernon's Anne Rev. Civ. Stat. of Texas), included in said amendmentthe followingprovisionr

"

. . . "?T:o law of this State pertaining to insuranoe shall bs construedto apply to the establihsmentandmaintenanoe by individuals,assooiations,or oorporationsof sanatorimas or hospitals for the reception and care of patients forHon. 0. P. Lookhart page 10 (o-6101)

themedical, surgioal,or hygienic treatment of arIy and all diseases,or for the dnstruotionof 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 services, cars of, instructionin, or in conneotion **with** any such institution,under or by virtue of any contractmade for such purposeswith 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-seventhLegislature)but said said above quoted provisionwas left out of said amendments. This action of the Legislature clearly shows that itwas not its intention to except such contractsas that here under oonsiderationfrom the insurance laws of this State, as well also that its opinionwas that the laws of this State pertaining to insuranoedo include such oontraots. Trusting that this satisfactorilyanswersyour 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