What must an insurer do if the insured fails to disclose material facts?

When an insured fails to disclose material facts, the insurer has a right to deny any claims based on the principle of utmost good faith, or "uberrima fides," which underpins insurance contracts. This principle requires both parties—insurers and insureds—to act honestly and disclose all relevant information regarding the risk being insured.

If the insured fails to disclose material facts, this can lead to misrepresentation or concealment that affects the insurer's ability to assess the risk accurately. In such cases, the insurer may choose to deny claims because the lack of disclosure can fundamentally alter the risk profile. By not providing all material facts, the insured fails to meet their obligations under the insurance contract, which justifies the insurer's denial of claims.

The other options present alternatives that do not align with the principles of insurance law regarding non-disclosure. For example, simply accepting the risk with increased premiums would not address the fundamental issue of the information misrepresentation, and providing full compensation would undermine the insurer's right to act based on accurate risk assessment. Offering a chance to rectify the issue might suggest a willingness to overlook the initial failure to disclose, which is not typically how these matters are resolved in insurance practices.