New Jersey Property and Casualty Insurance Practice test

Material change in exposure means any change in the insured’s hazard that would increase the chance of loss or its potential severity, and the insurer must be notified about such changes. If a higher-risk use is adopted without telling the insurer, the policy holder has increased the risk without disclosure, so cancellation can be a valid remedy for the insurer.

In this scenario, changing the building’s use to a higher-risk operation without notice directly increases the insured’s exposure. The insurer wasn’t informed of this higher risk, so cancellation is a possible action under the rule.

Switching to a lower-risk use wouldn’t raise the risk, so it wouldn’t trigger cancellation for non-disclosure. Filing a claim isn’t itself a change in exposure that requires notice, though it can affect ongoing risk and future coverage terms. Ending the policy term simply stops coverage for unrelated reasons, not because a material exposure change was undisclosed.