When a policyholder does not operate in good faith, what can happen?

When a policyholder does not operate in good faith, their insurance contract can become compromised. Good faith is a fundamental principle in insurance, requiring both parties—the insurer and the policyholder—to engage honestly and fairly in their dealings. If a policyholder acts in bad faith, such as by providing false information, failing to disclose relevant facts, or submitting fraudulent claims, the insurer has the right to challenge the validity of the contract.

This compromise in the contract can lead to several consequences, including the potential for the insurer to deny claims, cancel the policy, or even pursue legal action against the policyholder. In this context, it highlights the importance of maintaining transparency and integrity in all dealings related to insurance policies.

The other options do not align with the implications of operating in bad faith; for example, acting dishonestly does not lead to automatic rewards or extensions and typically means that errors are scrutinized more closely rather than being overlooked.