Cem,
In the UK, the law is on the insurers side. If you fail to declare ANYTHING that should be reasonably declared, then your insurance will be invalid with the full backing of the law. This in practice means any non-standard modification to a motor vehicle. Even painting a GT stripe will invalidate your insurance if it is not declared as they will deem if they had known, this would have been an increased risk factor.
Where the insurance will still stand is for any 3rd party damage, but with fully comprehensive insurance it will NOT cover your damage as they will cancel the policy.
Yes, you can go to the insurance ombudsman, some cases will be upheld and some rejected. After that, the next course of action would be to take it to court, but this is very expensive and unless you could show that the ombudsman have ignored some significant evidence or had made a clear mistake, you would probably lose again.
Policy wordings are carefully drafted legal documents, but there are occasional loopholes, a particular set of circumstances that are unclear in the policy wording or during the sales process. Then the insurance company may accept or reject the claim on how close the circumstances fit the intent of the policy wording and it is in these circumstances that an Ombudsman's ruling may be required. The insurance company will then quickly revise the policy wording to close the loophole or make the intent of the policy clearer.
There are strict rules enforced by the Financial Conduct Authority (FCA) on what you can and can't say when selling an insurance policy and insurance companies have compliance officers to make sure these are upheld.
So, yes there are shades of grey, but if you don't declare a modification then that is generally black and white.