Withholding such a circumstance is fraud, and therefore the policy is void. Even if the suppression should be by mistake, without any fraudulent intent, the insurer is still misled and the policy is void; because the risk really differs from the risk that was understood and intended to run, at the time of the contract. [The Chicago v. Thompson, 19 Ill. 578, 1858 WL 5993, 9 Peck 578 (Ill. 1858)] and the insurance contract is based on good faith.
Lord Mansfield stated that the rule is still followed to this day: “Good faith forbids either party by concealing what he privately knows, to draw the other into a finding, from his ignorance of that fact and his belief to the contrary.
The implied covenant declares that no party to an insurance contract should do anything to deprive the other of the benefits of the contract.”
For the insurance to work; for each insurer to properly evaluate the risks presented; for each insurer to obtain the insurance desired; and for each insured and insurer to settle all claims fairly and equitably, they must treat each other with the utmost good faith and do nothing to deprive the other of the benefits of the contract.
Each party to the insurance contract is expected to treat the other fairly in the acquisition and performance of the contract. For example, the prospective insured must answer all questions about the risk he or she is asking the insurer to take and about the person the insurer is being asked to insure. Likewise, the insurer must honestly, clearly and in good faith explain to the insured(s) the risks the insurer is willing to take and the terms and conditions of the insurance contract.