If Mutual Insurance Co. cancels Ralph's insurance after discovering material misrepresentation, is this cancellation legitimate?

The legitimacy of the cancellation of Ralph's insurance by Mutual Insurance Co. hinges on the concept of material misrepresentation. When a policyholder provides inaccurate or misleading information that affects the insurer's decision to underwrite the policy, the insurer has the right to cancel the policy upon discovery of that misrepresentation. In this case, if Ralph obtained his insurance policy by misrepresenting significant details—such as his driving history or other risk factors—that misrepresentation is considered material, allowing the insurer to take action.

The principle of material misrepresentation is rooted in the insurer's reliance on the information provided during the application process. If it turns out that this information was false and significant enough to influence the insurer's terms or decision to issue coverage, cancellation is justified to uphold the integrity of the insurance contract. This means that the first option is correct because it directly addresses the impact of the misrepresentation on the contractual relationship between Ralph and the insurance company, rendering the cancellation legitimate.