What happens to a contract if statements in the application that are guaranteed true are later found false?

When statements in the application that are guaranteed to be true are later discovered to be false, the contract can become voided. This is rooted in the principle of utmost good faith in insurance contracts, which necessitates that the applicant provide truthful information. If a guaranteed statement—also referred to as a warranty—proves to be untrue, the insurer has the right to void the contract because the misrepresentation undermines the foundation of trust upon which the agreement was based. This means that the contract is considered void from its inception, as if it never existed, allowing the insurer to reject any claims made under that policy.

Other options address different aspects of warranties or contractual obligations but do not capture the full legal implication of guaranteed statements being false. Nullification of the warranty refers to removing the warranty itself, which does not encompass the entire contract being voided. A waiver implies that one party is relinquishing a right, which does not apply when a guaranteed statement is false. Establishing a monetary penalty also misinterprets the situation, as the focus is on the validity of the contract rather than imposing a fine. Thus, the voidance of the contract serves as the correct interpretation in this scenario.