What the frack happened?

Okay so a couple of weeks ago I went to the post office. On the way home, I was in an accident. I was traveling towards an intersection, where I have the right of way - no stops sign in my direction, when the driver crossing my intersection quickly stops then goes. I notice he is on the phone. I slam on my brakes and veer to the right in hopes of not hitting him. Unfortunately that is not the case. I come in contact with his right front wheel well. There is no damage to his car. Mine on the other hand is messed up to the tune of almost $2000. I did call the police. They came out logged the accident in their system, however did not do a report because as he stated "the damage is so minor". The driver admitted to the police officer that it was his fault and when the policeman heard that he said "well you've exchanged information that's all you need to do."

His insurance company is SAFECO. They sent me a letter today denying my claim and telling me their driver is not at fault. How is that possible? I am so tired of insurance companies. Anyone have any suggestions on how to proceed?

Safeco if Evil. Looks like I will have to go to small claims court.