How are insurance companies legal?

You pay premiums for insurance but the second you get into a wreck, what happened to all that money i had paid before? Why are my rates going higher, i thought that is why i am paying for insurance for the eventual car wreck. To me most insurance companies are legal scams. Example, Now a judge ruled that Katrina surge damage isnt protected under the insurance. If you are paying for flood insurance i think that definitely falls into that category. I can believe that a company wouldnt cover its inusred after such a catastrophy. What kind of business or moral ethics are those?