If an insurer discovers that an insured deliberately misrepresented a fact, what is the likely action?

When an insurer discovers that an insured has deliberately misrepresented a fact, the insurer's likely action is to avoid the policy ab initio. This means that the contract is treated as if it never existed from the very beginning. The principle behind this response hinges on the concept of utmost good faith or "uberrima fides," which requires both parties in an insurance agreement to provide truthful and full disclosure of all relevant information.

Deliberate misrepresentation undermines the foundation of trust that the insurance contract relies upon. If a misrepresentation is proven to be intentional, the insurer can exercise the right to void the policy from the start, effectively negating any obligations under that contract. This protects the insurer from the risks associated with having entered into a policy based on incorrect or dishonest information provided by the insured.

The other options involve various forms of modifying the policy or its terms after the discovery, which would not address the fundamental breach of trust caused by the deliberate act of misrepresentation. This further illustrates why the option to avoid the policy ab initio is the most appropriate and typical response in these scenarios.