The way I understand it is if you are doing something illegal, then you are a risk of having your insurance contract cancelled should you get into an accident and get sued. Maybe someone in the auto insurance business here can comment on this?
Nope as I already said, you cannot retroactively cancel a contract. You might be able to rescind it for a material misrepresentation (very rare) or deny coverage for due you some exclusion, conditions or loss payment provision.
Insurance contracts are contracts of adhesion which means any vagueness is interpreted in favor of the insured.
It’s true most include an exclusion for illegal acts but thin interionally running your wife’s lover over, not speeding or negligently overloading a trailer.
I have never heard of an insurance contract that would do what you scenario said. Which is why I sled for an example.