It's a well established principle of law that
the insured owes a duty of complete good faith to their insurer
in respect of an insurance contract.
Apart from being law, it also quite likely to be (read: "is almost always")
in the T&Cs of an insurance policy that an insured disclose all information material to the issuing of that policy.
The language varies, but that normally includes disclosing to the insurer,
at the time of entering into the insurance contract,
existing risk that is either (or any of)
- already known to the insured; and/or
- should reasonably be known to the insured; and/or
- was (should be) reasonably forseeable to the insured; and or
- was (or would be) reasonably suspected by the insured
as having a real risk of eventuating;
(The "risk" in this case is the risk of having a judgement entered against you in a proceeding,
and having to pay damages (money) as a result. A defamation action is a proceeding of this kind)
Once you disclose, they may or may not insure you at all.
An insurer can choose whom they insure, just as you can choose who insures you.
Sometimes, they will charge you a higher premium, that is proportional to the risk.
Sometimes, they will just decline to insure you at all.
But if they do insure you, then the seemingly little lie (of omission)
that you refer to can be grounds for them to refuse a claim.
That would be because you have not dealt with them in complete good faith,
as you are obliged to do.
Not only could they refuse to pay the immediately present claim,
but the entire policy itself can be voidable.