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Putting on a hat from my past life in insurance claims (ugh), the insurer couldn’t refuse a claim unless there is a specific clause in their policy which prevents an activity and even then if the activity did not contribute to the loss then they have no basis to refuse it. The most they could possibly do is deduct a premium to from the payout IF there was an increased risk because of the activity. So for instance if someone was running a sweatshop in a building with industrial sewing machines and there was damage due to a water leak then there is no basis for refusal of the claim. However if the leak damaged some of the machines etc. then there would be no cover as the policy wasn’t for a business. On the other hand if the sewing machines started a fire then there is two possibilities depending on the policy wording. They deny the claim because of improper use in the building or more likely they pay the claim then recover from the business owner.