Under what condition can an insurer void a contract?

An insurer can void a contract if the insured conceals facts that are material to the risk. This situation arises because insurance contracts are based on the principle of utmost good faith, which requires both parties to operate transparently. When the insured fails to disclose significant information that could influence the insurer's decision to underwrite the policy or determine the premium, it can lead to adverse selection.

Material facts pertain to any information that could affect the insurer’s assessment of the risk. If the insurer discovers that the insured withheld such information, it undermines the basis of the agreement and allows the insurer to rescind the policy. This helps protect the insurer from undue risk exposure that arises from incomplete or misleading representations by the insured.

While paying premiums is crucial for maintaining coverage, failure to do so typically results in lapses rather than outright voiding of the contract. Making a claim within the first year or misunderstandings about policy terms do not generally provide grounds for voiding the contract on the same level that material concealment does, as these situations may reflect misunderstandings or policy provisions that don't involve intentional deceit.