## 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 aguarantee bond is a contract ofinsurance which would subject companies issuing same to the provisions ofthe Texas Insurance Code. You have requested our opinion on the question ofwhether agiven termite service contract submitted with your request is acontract ofinsurance. Your concern arises by virtue ofthe fact that none ofthe companies issuing such contracts are licensed under the Texas Insurance Code. We answer your question inthe negative.

Inessence, the contract provides that for agiven consideration the issuing company will treat the building or buildings covered by such contract. Itfurther 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.

Itis obvious that the primary inducement to this contract is the extermination oftermites through the treatment afforded by the issuing company. Itis this service which it is in the business ofselling. The guarantee is in the nature of apromise 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 atire warranty. The Collrtere said: &I

. . 0Relating 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 ofthe goods sold. On the other hand, anumber of courts have announced the rule that ifthe vendor of goods guarantees them against hazards disconnected with defects in the articles themselves, such guaranty is equivalent to acontract of insurance. G/j oo*We find difficulty in construing this agreement as more than arepresentation that the tires being sold are so well and carefully manufactured that they will give satisfactory service under ordinary usage forHon. 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 inpoint and the line between acontract which is primarily insurance and one which is construed as awarranty is shadowy at best. However, as ageneral rule, the courts examine the contract as awhole, 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 ofassumption ofrisk 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 awhole,

‘service’ rather than ‘indemnity’ is its principle object and purpose.‘” The principle purpose ofthe 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 acontract 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 BYAssistant Atto

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