Insurance, like most contracts between consumers and a business, is built on trust, otherwise known as good faith. The insurance company trusts that you will disclose all the relevant facts and you trust that they will cover you when you need it.
A breach, of course, occurs when this trust is broken. If you, for example, don’t tell your life insurance provider that you used to smoke, then that is a breach of utmost good faith.
It is possible for you to commit a breach of utmost good faith without knowing it. For example, if a family member died of heart disease and you didn’t mention this when asked by your health insurance provider because you weren’t aware of that fact, this is an innocent breach of faith. If you were aware of the fact and didn’t fill out forms truthfully, of course, you would be guilty of fraudulent non-disclosure or breach of faith.
What happens if an insurer discovers a non-disclosed fact or a breach of good faith? First, your insurance policy is null and void. Your provider is no longer obligated to cover you. If the new information is discovered at the same time a claim is made, you may not receive payment of the claim. Depending upon the new information that came to light, your insurance provider may keep you on but charge higher rates or ignore the incident.