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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