You need to check the terms of the policy: insurance policies are contracts, and the insurer must pay out claims when--but only when--the terms of the police say so. So if there is some exception or exclusion in the policy, such that the insurer would not have to pay out if there were criminal activities, then that term of the policy is valid and enforceable, and they could deny the claim.The could also deny the claim if the information upon which it was issued and/or maintained is false. For example, if your policy was only for your own residential use of the home and not for it being rented out to other people (i.e. if you did not disclose the rental use to the insurer, since the risk profile is different for rental homes vs. homes used as the primary residence by their owners--had you disclosed, they would likely have charged you more, for a different policy), then if they discover it was being rented out, they could deny coverage.But if you did disclose that it was a rental home and there was no exclusion for illegal activities in the policy, the insurer should have to pay. If they do not, you could sue them for "breach of contract"--for not honoring their contratual obligation to pay this claim under these circumstances.