House Insurance for rented property divided into flats.

I rang my house insurance company yesterday to inform them that I had converted a rented house into 2 flats and they said they wouldn't cover that as they only insure stand alone apartments. Having one door in was the crunch I think. Fair enough (as it's in their policy which is why I reng them) but while I was talking to the girl they then said that as I was non resident they shouldn't have been insuring me anyway (their underwriters in the UK don't allow this apparently and have never done so) and they were now also going to cancel my insurance on another property that's rented. I've had property insured with them since 2002 and each year they sent the letters to my foreign address and also when I filled out the forms I would have used this address. They've given me 21 days to find new insurance. I asked them what would have happend if I'd made a claim (eg if the house burnt down) and they said "we'd have come to some arrangement." They're sending me a letter.

Question 1. Anyone know who insures for houses converted into flats, owned by non residents.
Question 2. If a non resident is not covered shouldn't they pay me back my premiums for all the years from 2002. I always corresponded using my foreign address and they likewise did the same and it's their fault not mine they didn't pick it up.
Question 3. Am I actually covered, I don't like "we would have come to some arrangement" - what does this mean?

I've looked at the posting guidelines and I believe I'm allowed 'bump' this up as it's more than a week.

Anybody know anything about about house insurance able to guide me?

I've received the cancellation letter and the gist of it is as follows:

"it's an underwriting requirement that policyholders reside within the Rep of Irl and as my main residence is in Belgium I cannot be covered"

I'm in the process of arranging new insurance (so no need for advice on this) but what I'd also like to know is can cover be refused if you're non resident, I'm in the EU area and surely it isn't legal to discriminate against EU citizens. There is no way I'd be able to get a Belgian insurance company cover a house in Ireland.