This is the law. The insurance company whether it is small or large, is not just being a dick by following the law. If they would just pay you even though their insured was not at fault under the law, how do you think their insured would react.What about the person who pulled out, causing the swerve?
Not trying to be a d*ck, but what if the other option was T-boning the car that pulled out at speed, maybe the sideswipe of your wife's car was the better option, in which case, it may not have been negligent. The person who pulled out, that would seem to be where the true fault lies given the way you described it. The way this works out in court (which is the basis they use in determinining liability for the accident) is that the accident may have more than one cause and no party involved is supposed to be held liable for more than their portion of the fault.