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 supemision 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 patient 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 irmnediately prior to such hospital 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, semiinvalidism, self-destruction3 losses sustained in violation 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 maployer 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 accidents 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 deemed 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 disability 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 inmrance, 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 Jurisprudence, Vol. 24, page 660, as followsr 

"tInsurance is a word of comprehensive and varied 

meaning., In a general sense the term signifies an 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 subject by specified 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 interchangeably, although the.former is seldcPn employed. 

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 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 

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 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 subject by specified perils; that is, an undertaking by one party to pretect the other party from loss arisimg frclla nssaed risks, 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 asslilped by one of the parties to the contract, whatever form 

the contract may take, it is in fact a contract of insurance. 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 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 ~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, Then decisions 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. 'Ihe record also discloses that the corporation opsrated 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 within 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 remains, 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,e dealing 

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 prepared 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 sohermes designed 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 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, 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 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 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 concl sion was roached in New York with respect to a jeweler's 

promis;~; relating to watches purchased from him, Ollendorff 

llBtch Co. 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 constitutes 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 organization.' 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 without 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 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 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 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 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 uncertainty of the amount to be paid by the Defense Company to meet 

the exigenoy oontraoted against is persuasive 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 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 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 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 xuuuld bs futile to argue 

that the contract in question does not indemnify him 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 

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 oontraot holder is required to do nothing other than to notify 

appellee that he needs an attorney, and, upon such notifioation, he is relieved of all expenses inoident to the employment 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 representing 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 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 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. 

ed to the 

In further-support of 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-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 sanatorimas 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 

arIy and 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 services, cars of, instructionin, or in conneotion with 

any such institution, under or by virtue of any contract 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 intention 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