Great answers below - really like Mary Lawler's, but to confirm/add:
The Insurance company should provide you with some answers:
"Why" they will not provide coverage
"When" they discovered this reason (prior to close of escrow or after)
It may feel very alarming to you, but I have seen similar situations where the next insurance company was more than happy to provide insurance on the home.
After finding out the above questions, contact additional insurance companies, be up front (most insurance companies all share claims histories on properties) .
Best of Luck!