What action is prohibited regarding the settlement of claims based on altered applications?

The prohibition against settling claims based on applications that have been altered without knowledge or consent is crucial for maintaining the integrity of the insurance claims process. Alteration of an application can misrepresent the facts about the risk involved, which can lead to unjust outcomes for both insurers and policyholders.

When claims are settled based on such altered applications, it undermines the foundational principle of fair dealing in insurance. The company must rely on accurate and truthful information when evaluating risks and determining the terms of coverage. Any discrepancy resulting from unauthorized alterations compromises the validity of the policy and can lead to fraudulent claims, which can have serious legal implications.

This principle ensures that all parties are treated fairly and that claims are processed according to the true risk profile represented in the original application. Therefore, settling claims based on these altered applications is not only unethical but also legally questionable, justifying the prohibition.