Can an insurer deny a claim based on an applicant's involvement in illegal activities?

An insurer is permitted to deny a claim if the applicant's involvement in illegal activities is material to the policy. This means that if the illegal activity has a significant bearing on the risk assessed by the insurer or if it directly relates to the coverage in question, the insurer can invoke this reason to deny the claim. For instance, if the policy excludes coverage for incidents involving illegal acts, then any claim that arises from such activities might not be honored.

The concept of materiality is essential in insurance, as it helps protect an insurer from assuming risks that they would not have accepted had they been aware of the applicant's illegal activities. Having this rule in place ensures that insurers can maintain the integrity of their coverage and underwriting processes.

In contrast, the other choices either suggest a blanket requirement for claim approval regardless of circumstances or restrict the denial of claims to specific time frames or types of illegal activities, which does not align with the broader principles established in insurance law regarding materiality.