If the mortgage company agreed by contract to collect money from you and pay your homeowner's insurance, then their failure to make the payment would be a breach of contract entitling you to compensation for your damages.
Some states have statutes that govern this very situation and which impose statutory penalties against the lender or its servicer for mishandling an escrow account.
I am not a AZ attorney, laws vary from state to state, therefore you should always consult a local attorney.
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If your mortgage company has been collecting for the insurance and has stopped transmitting the funds, I would contact them in writing and see what happened. They may be able to make things right with the insurance company and get your policy reinstated.
If not, you may have to sue them for damages, including the increase in policy rates.
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