When may an insurer refuse to pay a claim based on an inaccurate representation?

The correct answer is based on the principle that an insurer may refuse to pay a claim if the misrepresentation materially affects the assessment of the risk. This is grounded in the idea that the insurer relies on accurate information when underwriting a policy. If the misrepresentation is significant enough to alter the insurer's understanding of the risk involved, it can impact their decision to provide coverage or the terms of that coverage.

For instance, if an applicant states that they have never had any prior insurance claims but actually had multiple claims in the past, this false information could lead to the insurer accepting a high-risk client under terms that would not have been agreed upon had the insurer known the truth. Therefore, when the misrepresentation affects the insurer’s evaluation of risk, they have the right to refuse a claim or void the policy altogether.

Minor misrepresentations that do not impact the risk assessment typically do not warrant a denial of a claim, and the insurer may not leverage those against the policyholder. The other choices do not align with the core principle that the relevance of the misrepresentation to risk assessment is essential for a claim denial.