Why wasn't a coverage template auto-populated based on default coverage setup?

If you've set up default coverage on a global or customer level, the coverage doesn't get automatically applied on coverage products in subscriptions. You need to select a coverage at the product level.

As a prerequisite, ensure that a warranty item is set up in the Oracle Product Information Model (PIM). After you set up the product as a warranty item, then you can manually select standard coverage for the product. The navigation in the product model is Product Management > Product Information Management > Manage Items > select a warranty item > Specifications > Service > Standard Coverage.