Case Information

*1 Hon. 0. P. Lgckhart Opinion No. 0-4986-A

Chairman Fle: Is the Cass County Rural Health Board of Insurance Service engaged in the Insurance busl-

Commlssloners ness, and, If so, Is the service sub- State of Texas ject to the. supervision. of the State Austin, Texas Insurance Department, and related

questions. (Thls,oplnlon overrules Dear Slrr Opinion #O-4986)

This is in answer to your request for opinion dated Novem- ber 23, 1942, and its accompanying documents. From your communica- tion we summarize the following statement of facts as the basis for this opinion:

The Cass County Rural Health Service is a domestic corpora- tion, chartered under Section 2 of Article 1302, Vernon's Annotated Civil Statutes, as a "charitable and benevolent" association. It is organized for the effectuation of several objects. It is lncorpor- ated for the purpose of promoting the general health of the members by the prevention of disease. The officers and directors of the Service receive no remuneration, and the organization itself is co- operative, with no possibility of profits accruing to anyone. Member- ship In the Service is confined to members of Cass County families, whose Income is derived principally from farming and allied pursuits. The Service executes a form of contract with the members by the terms of which the members pay to the Service a membership fee. In return for this membership fee the Service undertakes without profit to lt- self to provide dental care, medical care, drugs, etc. for the mem- bers and their familles.~ In order to furnish its serv ces the asso- i

ciation has entered into an agreement with the various hospitals, physicians, dentists and drug stores, whereby the latter parties agree to render stipulated services to the members of the Service at agreed and standardized fees, etc. A member who requires any of the stipulated services, or merchandise, or goods is free to obtain same from any of the contracting physicians, dentists, drug stores, etc., but the member Is not allowed to obtain said services from Parties not bound to the Service by contract, unless some contracting party refers the member to the noncontracting practitioner. When the said services are performed or the said medicines are furnished, the Serv- ice then reimburses the practitioner; the member does not pay the practitioner or the one who furnishes the services or drugs other than by the payment of the membership fee to the Health Service.

Article VIII, Section 3(a), of the By-laws of the Health County Health Service, provides that:

Hon. 0. P. Lockhart, page 2 (O-4986-P)

"This association does not guarantee that any hospi- tal, physician, surgeon, dentist or druggist with whom it may enter into agreement to render services will per- form such services, and its only obligation ln the event of the breach of such agreement shall be to use Its best efforts to obtnln the needed services from another source.@8 Althoughthe Service is a domestic corporation and Its offi- cers and directors presumably are resldents of Cass County, Texas, it was rostered by a branch of the Federal Department of Agriculture, and that department furnished the organizers to establish the Service, formulated Its inner organization, the membership fees. and has paid a great propprtlon of

The Service has complied with none of the stat- utes of Texas relating to health and accident insurance companies.

Your letter Inquires (a> whether the soclety8s business constitutes an insurance business; (b) .whether the operation of the service is ul.tra vlres; (c) whether the Board of Insurance Commisslon- ers has any urisdiction over the society as now constituted and oper- ated; and (d 3 whether the business otherwise Is lawful.

In order to determine whether or not the business conducted by the Cass County Rural Health Service is Insurance it is necessary to test and measure the said business by the Texas statutory deflnl- tlon 0S insurance.

Article of Vernon’s Revlsed Texas Civil Statutes reads as follows:

“A life Insurance company shall be deemed to be a corporation doing business under any charter Involving the payment of money or other thing of value conditioned on the continuance or cessation of human llf e, or Involving an ln- guaranty, oontract or pledge, for the payment of surance endowments or aunuit ies . b accident insurance company shall be deemed to be a oorporatlon doing business under any char- ter involving the payment of any amount of money or other. thing of value conditioned upon loss by reason of liability due to sickness or 111 health. A health insurance company shall be deemed to be a corporation doing btisiness under any ohartsr involving the payment of any amount of money, or other thing of value, oondltloned upon loss by reason of dls- ability due to slokness or ill health. . . .‘I We know of no Texas decision which answers the question as to whether or not the business of the Cass County Rural Health Association is Insurance business, and in the absence of such Texas deoislon we must have reoourse to the dsoisiona of other jurlsdlotlons.

In the State of Washington the statutory definition of lnsur- ante is substantially the same as that which obtains in Texas.

Hon. 0. P. Lockhart, page 3 (O-4986-A) Code, Laws of Washington, 1911,

Section 1 of the Insurance C. 49, defines Insurance as followsr

“Insurance is a contract whereby one party, called the Insurer, for a consideration undertakes to pay money or its equivalent or to do an act valuable to another party called the insured or his beneficiary upon the happening of the hazard or peril insured against, whereby the party Injured or his beneficiary suffers loss or Injury." .i :_

In the State of Washington the Universal Service Agency was conducting a business essentially the same as that conducted by the Cass County Rural Health Service ln Texas. The contracts made bythe Universal Service Agency appeared to be substantially the same, with its members, as those made by.the Cass County Rural Health Service with its members. An action against the Universal Service Agency was Instituted in the state courts of Washington, on the relation of the insurance commissioner of that state; this action was brought seeking to forfeit the corporate franchise and to wind up the affairs of the Universal Service Agency. The special grievance complained of was that the Universal Service Qgency was engaged in the Insurance busl- ness in the State of Washington without complying with the statutes . regulating the doing of such business.

The Supreme Court of Washington decided that the business conducted by the Universal Service Agency was not the business-of ln- surance . The case referred to.ls State ex rel Fishbach, Insurance Com- mLssloner, v. Universal Service Agency, 151 P. 768.

The case referred to is cited as authority on this subject ln 29 Am.Jur., par. 12, on page 54, and in Ann.Cas. 1916C, page 1017.

In the District of Columbia the Group Health Association con- ducted a business analogous to that of the Cass County Health Service and made substantially the same contracts with Its members as were I made by the Cass County Health Service.

The applicable statute of the District of Columbia reads as followst

"Every corporation, joint stock company, or association not exempt herein, transacting business in the District of Columbia, which collects payments, dues or assessments from its members as holders of its certlflcates or pollcles, and which provide for the payment of indemnity on account of slck- ness or accident or benefit In case of death, shall be known as 'health, accl ent and life insurance company or assocla- d

tlon.‘” (Section 653, D.C. Code, 1926, Title 5, par. 179.)

The statutory definition of Insurance of the District of Columbia, above quoted, Is substantially the same as that of Texas.

Hon. 0. P. Lockhart pi page 4 (O-4986* A)

In the case of Jordan v. tiroup Health Association it was contended as against the Group Health Association that it was a “health, accident and life insurance company or assoclatlon11 as de- fined in the foregoing quoted District of Columbia Code.

In passing upon this question the United States Court of Appeals for the District .of Columbia decided that the Group Health Association was not engaged ln the business of insurance. (Jordan v. Group Health Association, P.(2d) 239)

Upon the strength of the cases above quoted we are of the opinion that the Cass County Health Service is not engaged in the in- surance business.

Insomuch as the Cass County Rural Health Service is not en- gaged In the insurance business you are advised that It is not sub- ject to the supervision of the &ate Insurance Department.

In our opinion there Is nothing disclosed in your letter or ln the accompanying documents which Indicate that the business of the Cass County Rural Health Service is either ultra vlres or unlawful,

NE trust we have fully answered your questions. Yours very truly ATTOFlNEY GENERAL OF T&X88 By /s/ Geo. P . Blackburn George P. Blaokburn, Assistant APPROVED MAR 25, 1943

/s/ Grover Sellers

FIRST ASSISTANT ATTORNEY GENWAL

Thi.a oplnlm considered and approved In limited oonferenoe.

GF’Ba AlWwb