(Bloomberg) -- When Amy Rehbit moved to upstate New York in August 2007 to live with her parents, she intended to sell her Long Island house.

The 35-year-old school teacher traveled from her new home outside Albany every other weekend to check on the house. Her parents drove back or a neighbor looked in when she couldn’t be there. The house was still furnished. The cable TV was still hooked up.

Rehbit received a letter six months ago from MetLife Inc., the biggest U.S. life insurer, canceling her homeowners’ insurance policy because the residence was unoccupied. MetLife “looks at the totality of the circumstances to determine whether the state of being unoccupied has led to an increase in the hazard based on a willful or reckless act, or omission by the insured,” said company spokesman Ted Mitchell. He declined to discuss Rehbit’s case.

The New York State Insurance Department warned companies Nov. 19 not to terminate policies just because someone isn’t living in the house. Insurers can consider occupancy in a decision about whether their risk has changed only in combination with other factors, the department said.

New York regulators acted after receiving dozens of complaints going back at least three years, said Steven Nachman, the insurance department’s deputy superintendent for frauds and consumer services in New York City. The way companies were canceling policies “deprives homeowners of their policy rights,” he said.

Slumping House Prices

With homes harder to sell, homeowners like Rehbit are concerned about how to keep their policies intact. The S&P/Case- Shiller index of house prices in 20 U.S. cities declined in the year ended Sept. 30 at the fastest pace on record.

At the end of June, the number of vacant houses in the U.S. reached an all-time high of 18.6 million, according to the U.S. Census Bureau. The agency estimates 2.8 percent of the U.S. home inventory is vacant and for sale, compared with 1.8 percent in the first half of 2005.

New York officials say the canceling of policies for unoccupied houses isn’t unique to the state. Regulators want to reverse the trend as market conditions deteriorate and home-loan defaults increase across the U.S.

“It’s possible insurers will be tempted to act in situations where foreclosures are possible,” Nachman said. “It’s important they adhere to the insurance law.”

The insurance department has asked companies to restore coverage. Many have complied and others have taken some prodding, Nachman said.

Empty Homes

“Insurance companies have always had a problem with empty houses,” said Robert Hunter, a former Texas insurance commissioner now at the Consumer Federation of America. “I would think insurance companies would be well advised at a time of economic stress to adjust their underwriting guidelines.”

There’s no industrywide movement to cancel policies when houses are temporarily unoccupied, said Ellen Melchionni, president of the New York Insurance Association, an industry trade group in Albany. Regulators need to spell out the difference between “unoccupied” and “abandoned,” she said.

“Companies need the ability and the flexibility to cancel policies,” Melchionni said.

Homeowners should notify their insurers when they’re going to be away from their houses for long stretches, Melchionni said. Insurance companies can provide advice for reducing the risk of arson, frozen pipes, plumbing leaks and roof damage, she said.

No Takers

Rehbit said she didn’t think her policy cancellation was a big deal until she tried to get coverage through another company and couldn’t find any takers. Eventually she got a policy with an annual premium that increased to $2,400 from her earlier cost of about $700.

It was then that she said she complained to the state insurance department. A few months later, Rehbit said MetLife told her the policy for her house, which she sold in September, would be restored at the original rate.

“Don’t let the insurance companies walk over you,” Rehbit said. “Fight back. Everyone said I had to live with it. I decided to take a chance.”

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