CDW is NOT insurance.
It is a contractual protection which limits your liability in the event of damage or theft to the rental car. CDW has nothing to do with any injury or damage to you, your other passengers, the other car or its driver or passengers. It only deals with the damage to your rental car. If you hit somebodyand put them in a wheel chair and are sued for a couple million bucks, CDW does nothing for you. (But there should already be third party liability insurance which cover this)
I don't know if car rental company has fleet insurance to cover damage or loss to its own cars of the car rental company just self insures.m, But why would the rental company make a claim against its insurance, pay a deductible and have its fleet insurance go up, or eat a loss? In the fine print of your rental contract, the company can go against your credit card and make you pay all the damage up to the full price of the car.
That is the fear which convinces people to buy CDW. CDW limits your liability to a certain amount. But the CDW can still be a scary high amount up to $1000. That is the second fear which makes people pay even more money for super CDW or excess coverage to bring the limit of liability down to $0.
The CDW and the excess coverage is usually sold as an extra. When people compare prices, they usually just compare the basic daily rates and book based on that. The CDW and excess are added afterwards and is usually bought out of fear or ignorance.
In Italy, the CDW is mandatory in all car rental agreements. I don't know if this is a government requirement. All i know is that when you compare car rental prices in Italy with the mandatory CDW with a similar rental in another nearby country without the CDW, the total price is not all that different. When forced to have a level playing field of mandatory CDW, it seems that competition forces the prices down. To me, the CDW is probably not a necessary financial component for the car rental company, it is just an extra source of revenue if they can convince the renter to pay.
There are other options available, credit card, own car insurance or third party insurance. See the RS articles. Here is another article which explains that many people inadvertently chose CWD because of the language problem:
http://www.gemut.com/car-rentals/rental-car-tips-and-advice/922-avoiding-unwanted-cdw-charges-on-european-car-rentals.html
In Chani's case, possibly, it may have been a scam, a misunderstanding or miscommunication by either the desk person or the renter. When i checked out the Europcar France site, the CDW should still be optional, not mandatory.