Hello and thank you for allowing me the opportunity to assist you.
Based on what you wrote, I don't see any reason that you would be arrested. It doesn't appear that a crime was committed. First, you wrote that the other driver would have hit you (not the other way around), so you would not be guilty of a hit & run. Second, even if you had hit the other car, you would not be guilty of a hit & run unless you knew what occurred and purposely drove away.
As for the insurance, it sounds like the damage should be covered, though I can't say for certain since I haven't read the policy
and whether it has exclusions. If I were you, I'd just tell Hertz that you are unsure how the damage occurred, but that you are certain that you did not cause the damage. I would then tell them that you are expecting the extra insurance to cover the repairs. That puts the ball in their court.
Does that answer your question? Please let me know if you need clarification, as I am happy to continue helping you until you are satisfied. Also, your positive feedback is much appreciated.
Thank you for using our service!