My understanding is that, in such cases, the insurance company makes its money from the interest earned on the amount of money it holds. In other words, I have heard of the same scenario you are reporting.
I realize I’ve let myself get sidetracked in this thread as well, sorry about that.
While I still think your pitting was focused on the wrong people, I do agree that what happened to you and the missus sucks big time. My own experience with auto ownership has been less than stellar as well; I’ve had 2 cars stolen, several break ins, a couple accidents and so on. I don’t think I ever owned the same car for more than two years, which is part of why I’ve chosen not to own a car or drive very much for the last few years. Hope everything works out for you. 
As somebody who works in medical billing, I have to say I sympathize with the idea that insurance companies are, by and large, scum. I’ve seen claims rejected based on the flimsiest of reasons — for instance, a patient who was non-ambulatory for a week following surgery was required to pay for follow-up care himself because he didn’t have it done within the requisite 3-day follow-up period allowed by his policy.
What I’m getting as a life lesson from my work, and from this thread, is read your insurance policy. Backward and forward, upside down, and translated from Chinese. Know what they cover, read all the fine print, because if it’s got your signature on it, they will use it to deny you coverage if there’s any way to do so.
Knowing your policy won’t make insurance any better for you, but it’ll keep you from being disappointed when they turn down your claim.