If an insurer discovers a policyholder has submitted a fraudulent claim, what action might the insurer take?

When an insurer discovers that a policyholder has submitted a fraudulent claim, the appropriate course of action is to terminate the contract from the date of the fraud. This response is rooted in the principle of utmost good faith, which is fundamental to insurance contracts. When a policyholder commits fraud, they violate this principle, enabling the insurer to treat the contract as if it never existed from the moment the fraud occurred.

By terminating the contract, the insurer effectively nullifies any obligations to pay claims related to the fraudulent activity. This action also serves as a deterrent against fraudulent behavior in the future, reinforcing the importance of honesty in insurance dealings. The insurer's right to terminate is supported by the legal implications of misrepresentation and non-disclosure.

The other options involve actions that do not align with the insurer's rights in the event of fraud. For example, being obliged to pay the claim does not occur since fraud undermines the validity of the claim. Referring the claim to arbitration would not typically apply in cases of fraud, as arbitration centers around disputes regarding valid claims rather than fraudulent behavior. Lastly, while reporting to a regulator can be a necessary step in certain situations, it is not an immediate action that directly addresses the fraudulent claim itself.