Ark. Motor Club v. Ark. Employment Sec. Division

Citations: 237 Ark. 419; 373 S.W.2d 404; 1963 Ark. LEXIS 556Docket: 5-3151

Court: Supreme Court of Arkansas; December 23, 1963; Arkansas; State Supreme Court

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The case involves an appeal by Arkansas Motor Club, Inc. regarding its liability for Unemployment Compensation Tax for its salesmen. The Arkansas Commissioner of Labor determined that the salesmen were employees under an oral contract, not independent contractors, and were integral to the company's operations. The salesmen, selling motor club memberships rather than insurance, were found not to fall under the definition of insurance agents per the Arkansas Employment Security Act. The Commissioner ruled that Arkansas Motor Club was responsible for Unemployment Compensation Tax on the commissions paid to the salesmen. This decision was affirmed by the Board of Review and the Circuit Court of Pulaski County. The appellant argues that the salesmen operate independently and that the memberships constitute insurance contracts, thus exempting them from the Act. However, the court chose to focus on the classification of the salesmen as insurance agents, making the independent contractor argument moot. The club operates from Little Rock, with an office manager under the direction of officers in Atlanta, and employs agents who work on commission without salaries or travel expenses, receiving a percentage of the membership sales.

Membership in an automobile club or association, as defined under Ark. Stat. Ann. Eepl. 1957, provides various services and benefits to members. An 'Automobile Club or Association' includes any organization that, for a fee, covers expenses related to motor club services. The Insurance Commissioner has the authority to grant and revoke certificates of authorization for these clubs, oversee their operations, and enforce regulations. Clubs must post a bond, pay an annual licensing fee, and submit relevant documents, including membership applications and advertising materials. Agents representing these clubs must obtain a license from the Insurance Commissioner, who verifies their qualifications and moral character. Automobile clubs are not subjected to insurance company laws except for regulatory oversight by the Insurance Commissioner. Membership benefits include coverage for appearance bonds up to $200 for certain violations, bail bonds up to $5,000 for accidents, and attorneys' fees for various legal charges, with specified maximum amounts for different types of offenses.

The member is entitled to a certificate of accident insurance from the Inter-Ocean Insurance Company, offering benefits such as $10,000 for loss of life due to a railroad accident, $2,500 for bus, streetcar, steamship, or subway accidents, and $1,000 for various other types of accidents including automobile and airplane incidents. The certificate also includes benefits for loss of sight and limbs, along with hospital benefits for medical services. Section 4 addresses benefits for non-disabling injuries. The payments detailed in the certificate represent significant benefits associated with membership. Although several states lack a precise definition of "insurance," Arkansas defines it as a contract for indemnification or specified benefits upon determinable events. The Arkansas Motor Club's agreement to provide these benefits qualifies as a contract of insurance under this definition. The certificate and membership card both outline provisions for indemnification based on specific contingencies. Previous court rulings reinforce that membership benefits, even when not explicitly labeled as insurance, can still be categorized as such, as demonstrated in cases involving automobile repair and legal fee reimbursements. These rulings clarify that the classification of a contract as insurance depends on its purpose and content rather than explicit terminology.

A contract is defined as an agreement where one party assumes certain risks of another for consideration, promising a specified payment upon a particular contingency. In this case, the appellant's contract with its members aimed to indemnify them for attorney fees incurred while defending against moving traffic violations, subject to specific conditions outlined in the membership certificate. This arrangement qualifies as an insurance contract under the defined terms. In the case of Continental Auto Club, Inc. v. Navarre, the Supreme Court of Michigan determined that the automobile club's provision of attorney services and bail for members constituted engaging in the insurance business, despite the absence of a statutory definition of insurance in the state. Based on the statutory definition of insurance, the judgment in this matter was reversed, directing the Circuit Court to instruct the Commissioner of Labor to revoke his previous Determination of Coverage and issue a new order consistent with this opinion. Additionally, Arkansas law classifies independent contractors as employers and exempts insurance agents from employee status if compensated solely through commission. Agents may attend special meetings for information on contracts but are not obligated to do so, receiving reimbursement for associated travel costs. Further services, such as towing and emergency road assistance, are available for an additional premium, as established in Acts 377 of 1955 and 148 of 1959.