Passenger Charlie Morris of Lewisham, London, died when the Vauxhall Corsa crashed in Hadleigh in October 2006.
David Bissmire, 20, of Lewisham, admitted causing death by dangerous driving and was sentenced in 2008.
The High Court heard car owner Anne Bissmire had not informed the insurer of its “myriad modifications”.
Mr Bissmere, who was sentenced to four years in a young offenders institution, was a teenager when he crashed the car in London Road.
Mr Morris, 26, was flung from the car’s window onto the Victoria House Corner roundabout, the court heard.
The High Court heard the car had been bought on eBay for £770 and had lowered suspension, alloy wheels, an air vent in the bonnet and other additions.
Roger Harris, representing Diamond Insurance, told told Mr Justice Cooke: “One of the questions Mrs Bissmire was asked was whether the car had any modifications. She responded that it had not”.
After a brief hearing, at which Mrs Bissmire, of Sedgehill Road, Catford, London, was not present, the judge ruled that Diamond Insurance was entitled to “avoid” the policy.
The ruling means that substantial damages claims now likely to be made by Mr Morris’s family and others injured in the accident can only be taken up with the Motor Insurers Bureau, the industry body that compensates victims of uninsured drivers.
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