MPL Beta 1

[Alexander Terekhov]

On Tue, Dec 7, 2010 at 8:32 PM, Bruce Perens <bruce at perens.com> wrote:
> A short glance over the finding yields the fact that there was much in
> addition to a license, specifically an explicit permission letter addressed
> to the customer and giving permission for the particular application of the
> copyrighted material.

Automatic ipso factum termination of contracts without proper notice
(without affirmative steps by the allegedly injured party) is invalid
not only in the context of copyright licensing contracts.

Consider the following case regarding automatic termination:

http://m.sccourts.org/opinions/displayOpinion.cfm?caseNo=25464

"FACTS
In 1997, respondent Courtney (Husband) owned two cars, a Chevrolet
Camaro and Saturn, both insured with petitioner (Insurer). Both
policies had underinsured motorist coverage (UIM). (2)

In September 1997, Husband's wife, Susan Courtney (Wife), was in an
accident in the Camaro and the vehicle was a total loss. Insurer paid
for the vehicle under Husband's collision coverage. On October 4,
1997, Wife purchased a Chevrolet pickup truck as a replacement vehicle
and insured it with Unisun Insurance Company. The Unisun policy had no
UIM coverage.

On October 27, 1997, Husband was in an accident in the Saturn and was
seriously injured. He filed a claim with Insurer attempting to stack
the UIM coverage from the two policies issued by Insurer covering the
Camaro and the Saturn.

Insurer brought this declaratory judgment action to determine whether
the UIM coverage on both policies could be stacked or whether only the
Saturn UIM coverage applied. Although the Camaro policy was not
actually cancelled for non-payment of premiums until January 23, 1998,
Insurer claimed it terminated on October 4, 1997, when Wife insured
the replacement vehicle with Unisun. Insurer relied on an automatic
termination clause in the policy which provides:

If you obtain other insurance on your covered auto, (3) any similar
insurance provided by this policy will terminate as to that auto on
the effective date of the other insurance.

The trial court found the Camaro policy was not terminated for three
reasons: 1) Wife had no authority to terminate the Camaro policy by
buying insurance for the replacement vehicle without Husband's
consent; 2) the automatic termination clause was not triggered because
the insurance purchased for the replacement vehicle did not qualify as
"similar insurance;" and 3) termination under the automatic
termination clause did not comport with S.C. Code Ann. §
38-77-120(b)(2) (2002) which requires an overt act of the insured's
intent to cancel the policy.

The Court of Appeals affirmed on the ground the insurance purchased on
the replacement vehicle was not "similar insurance" and so the
automatic termination clause was not triggered. It declined to address
the alternative rulings of the trial court although Insurer appealed
these rulings as well.

ISSUE
Is an automatic termination clause valid under South Carolina law?

DISCUSSION
The Court of Appeals affirmed the trial court's finding that the
Unisun policy purchased by Wife did not qualify as "similar insurance"
because the Unisun policy did not include UIM coverage and it had
different liability limits than the policy with Insurer.

While we agree with the Court of Appeals's construction of the policy,
we find an automatic termination clause allowing unilateral
cancellation by an insurer is invalid under our statutory scheme. (4)

Section 38-77-120(b)(2), which was cited by the trial court in support
of its decision, provides:

§ 38-77-120. Requirements for notice of cancellation of or refusal to
renew policy.

(a) No cancellation or refusal to renew by an insurer of a policy of
automobile insurance is effective unless the insurer delivers or mails
to the named insured at the address shown in the policy a written
notice of the cancellation or refusal to renew.

. . . .
(b) Subsection (a) of this section does not apply if the:

. . . .
(2) named insured has demonstrated by some overt action to the insurer
or its agent that he expressly intends that the policy be canceled or
that it not be renewed.

Here, as found by the trial court, Insurer gave no notice of
cancellation as required under subsection (a) to validate its
cancellation based on the automatic termination clause.

. . . .
Cancellation based solely on an automatic termination clause without
notice to the insured violates § 38-77-120.

. . . .
In conclusion, we agree with the Court of Appeals's construction of
the automatic termination clause but conclude such a clause is not
valid in any event."

regards,
alexander.