You seem to be forgetting that this avoidance can work at two times:

1. pre-emptively dropping or refusing coverage

2. claim inspectors concluding the company has no liability for a particular incident.

It doesn't all need to be #2 (and probably should not be), but it also doesn't all need to be #1 either.

It isn’t always fraud or lying - you apply for insurance. Insurer asks you a million questions. One is “do you have a trampoline”? You honestly answer “No”. The fine print of the application form says you have to tell them if at any time your answers change. After a while, you forget it even asked you about a trampoline. Then, you get your kid a trampoline. Per insurance fine print, you are suppose to inform the insurer of this change in circumstances immediately, but you’ve forgotten that.

Also, it depends on the jurisdiction, but while the insurer can try to void the whole contract, courts don’t always let them do it, especially if the policyholder convinces the court it was an innocent mistake or oversight rather than a deliberate lie.

I mean, the insurer in that case discovered that the client was defrauding them. If you steal $100 from someone's cash register, buy scratchy lotteries with it, win $200, and put the $100 back in the register, you're still a thief. That's the logic here: you gambled on a pirate trampoline and feel like you should have won.

I don't know if it really is the case that your insurance can be voided over material misrepresentations unrelated to your claim, but certainly there's no moral argument that it shouldn't work that way.

Also doesn't stop the lawsuit between the policy holder and the insurance company, which also costs money.

Whereas your ability to sue for a non-existent policy (or one where that was unambiguously canceled) is... much less.

Pools are insurance issues because people die in them, and their nexts of kin sue the homeowner.

Pools are 'attractive nuisances'