The problem here is that the other driver was not driving the insured’s car, but rather a rental car.
With that said, in California at least, there should have been a third party claim against the driver’s liability policy. Similar to what went on here.
This is understandable (and no doubt rather common) but I’m not sure it’s logical. If you’re unwilling to pay the (admittedly exorbitant) fee for, say, a five-day rental, does it make sense to pay it for five one-day rentals?
Always go for all the waivers. The buggers will get you if you don’t. It’s how they make their money. Car rental companies are complete and utter cunts. They’ll charge you for a full repaint for the merest scratch. Or for a full valet even when the car is in pristine condition. They tried to catch a mate of mine in this way because he didn’t have the appropriate waiver. IIRC he disputed it, suggested that they bring the car out into the light for a proper inspection, and on the way out accidentally hit reverse, hitting a pillar and writing off the car. “Sorry about that; good thing I took the Collision Damage Waiver.” 
While you’re right in that it works out financially the same, I guess it would have to be more a psychological thing. For a single night’s rental, I just want to get in and get out, no hassles, and start driving my own car again, regardless of what could go wrong. And $10 to $15 is worth the troublefreeness. A five night rental has two things going for it against the insurance, though – it’s a $50 to $75 instant extra charge, but moreso, I’ve already made the commitment to be with the car for a longer period of time, and so any haggling with insurance companies and credit card companies makes it worth it. I guess it’s more plainly stated that for a single rental, my time (for dealing with insurance after the fact) is worth more than $15, but for $75 I’m willing to jump through the hoops.
How much did the rental cost?
Surely paying the daily rental rate every day for a year wouldn’t make sense either. But in the case of short-term need, it’s reasonable for the price to be higher. Is it worth the potential hassle of dealing with the rental car company, and your insurance, and your company, and your credit card (potentially) to save a few bucks? Maybe it is; maybe it isn’t. Certainly it is if you’re going to rent the car for a year. But maybe not if you’re just renting for a few days.
But of course the chance that you’ll need to deal with them due to a short rental is much lower than for a long one - in the exact proportion of the time ratio.
I begin to understand why people accept these ripoff prices - and thus why car rental companies charge them. It’s interesting to note that if people were willing to pay only half as much for this type of insurance, that’s exactly what the cost would be (because even at that price it would be a serious moneymaker).
When renting from a cheapo company for private use, I’ve taken to very visibly taking pictures of all sides of the car with my cheap digital camera or cell phone camera before I get in. It both lets you verify that there are no scratches or dents there already, and serves as protection against this bs.