THE A-m-0-y GENERAL 

OF TEXAS 

w’ILL WILSON 

ATl’O- GENERAL August 25. 1960 

Hon. Penn J. Jackson, Chairman 

State Board of Insurance 

International Life Building 

Austin, Texas 

Dear Mr. Jackson: 

Opinion No. WW -920 

Re: Whether a Termite Service 

contract and a guarantee bond is a 

contract of insurance which would 

subject companies issuing same 

to the provisions of the Texas 

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 insurance. 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 extermination 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 representation having to di, with the kind, quality, variety 

or title of the goods sold. On the other hand, a number 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 agreement 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 happenings 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 contract 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 determining. 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 

RVL/pe 

APPROVED: 

OPINION COMMITTEE: 

W. V. Geppert, Chairman 

J. C. Davis 

C. K. Richards 

Robert H. Walls 

BY 

Assistant Atto 

REVIEWED FOR THE ATTORNEY GENERAL 

BY: Houghton Brownlee, Jr.