Here's the interesting thing: UPS doesn't sell insurance, but employees tell you it does. It's all about semantics and avoiding actual payouts. If you take a package to a UPS facility and ask to insure it, they'll say sure - just pay this fee. If you don't ask, they'll offer you "insurance," and that's what they'll call it - insurance. But UPS says it sells Declared Value Coverage.
"Gain peace of mind when shipping your domestic and international packages" sounds great, and you're more than happy to pay for it, until you discover that UPS has every Get Out of Jail Free card possible in its incredibly confusing and opaque Terms. Check out the Internal Packaging info. God forbid you use newspaper rather than Kraft Paper!
"Acceptance of tender by UPS is not an indication that a Package is packed in accordance with UPS’s published standards. In addition, any tested product must be free from damage and the packaging must afford reasonable protection as determined by UPS in its sole judgment." Yep, their sole judgement. How often do you think their sole judgement ends with a payout?
Will the employee busy selling you "insurance" tell you that a payout by UPS is rare as hen's teeth and basically you're paying for a losing lottery ticket? No, they will not. Will they give you a simple list of UPS rules about packaging and what will cause your claim to be denied? No, they will not. Will they offer you an option of them inspecting your box before it's sealed and certifying that the packaging is "reasonable" so that you really will have "peace of mind"? Hell no, they will not.
The way you describe your packaging definitely sounds more than adequate. I have no idea what they did with your package. Probably the driver caught air and your package flew up; that's what we guessed happened to my pottery that broke....and wasn't covered, despite the massive amounts of bubble wrap and double boxing that has proved more than enough for every other piece I've shipped.
I would file a complaint with your state insurance commissioner, the FTC, and your Attorney General. Enough of these complaints will eventually make UPS change its ways. You might also consider Small Claims. Insurance is insurance, and if that's what they told you they sold you, you could have a case because the term brings a reasonable expectation to a consumer.
When you buy car insurance, you don't expect to have a claim denied because the airbag didn't inflate or the company doesn't like the way the bumper fits. The insurance company doesn't inspect your car before they issue insurance. Even if the accident is your fault, the insurance company will pay out, because THAT'S WHY YOU PAY FOR INSURANCE. Break a leg falling from your gutter-cleaning because you accidentally kicked away the ladder? You may be stupid, but your insurance will STILL PAY. Ask your insurance commissioner about all this and register your complaint. It was too late for me by the time I got smarter.