Where the insurers allege that they were induced to issue the policy by reason of the fraud, misrepresentation, or non-disclosure on the part of the assured, they are entitled to apply to the Court, on discovering the facts, for an order that the policy be delivered up to them to be cancelled. Their right to cancellation, whether on the ground of fraud, misrepresentation, or non-disclosure, depends on the fact that the policy is thereby voidable ab initio. Consequently, it never attaches, and is wholly inoperative as a contract of insurance, being mere waste paper in the hands of the assured.
The power of the Court to declare the contract void and to order cancellation of the policy, only exists, only exists where the contract is voidable ab initio by reason of a defect existing when the contract was made. If the policy is in its inception valid, but events subsequently happen which will preclude the assured from enforcing any claim under it, the Court cannot, on the application of the insurers, order the policy to be cancelled or declare that the insurers have a good legal defence to an action on the policy, and must wait until they are sued. If, however, no action on the policy is pending at the time when the events happen or are discovered to have happened, and there is a danger that the evidence of the events may be lost, the insurers may bring an action to perpetuate testimony.
Similarly, where the assured alleges that he was induced to enter into the contract contained in the policy by similar conduct on the part of the insurers or their agents, he is entitled to apply to the Court for an order rescinding the contract.
If the assured anticipates that the insurers will seek to avoid the policy, he may apply to the Court for a declaration that the policy is valid, but only if a claim or at least a dispute has arisen.