Hawaii Insurance Adjuster License Practice Exam

What happens if an insured intentionally conceals a material fact about property covered by a policy?

1. Coverage is increased

2. Coverage is voided

3. Coverage is limited

4. Coverage is unaffected

The correct answer is: Coverage is voided

When an insured intentionally conceals a material fact about property covered by a policy, the coverage is voided. This is rooted in the principle of utmost good faith, also known as "uberrima fides," which requires that both parties in an insurance contract act honestly. The concealment of material information—facts that would influence the insurer’s decision to accept the risk, set the premium, or determine policy terms—breaches this principle. If the insurer becomes aware that the insured knew of a significant fact that was hidden and that this fact was relevant to the risk being insured, the insurer has the right to void the policy. This means that the insurance company is released from its obligations, and claims made by the insured under that policy may be denied due to this misconduct. The rationale is that the insurer would not have provided coverage had it known the truth, thus the integrity of the insurance contract is upheld. Options that suggest an increase in coverage, limitation of coverage, or that coverage remains unaffected are incorrect because they do not recognize the severe repercussions of intentional misrepresentation or concealment that undermine the foundational trust necessary for an insurance contract.