I find that when people can't understand why they're being charged for something in a rental car, it's best to put it in the context of their own car.

Let's say you put diesel fuel in your brand new Ford Taurus and it conks out. You take it to the Ford dealer to be repaired. Are you expecting it to be covered under warranty? Do you expect your insurance to pay for it? Not a chance.

The CDW stands for Collision Damage Waiver. If you get into a collision with the vehicle, CDW waives your responsibility to pay for the damage. It does not cover mechanical damage unless it was part of an accident, for instance you rear-end someone and damage the radiator. Anything mechanical on the rental car would be covered by the manufacturer's warranty. For instance you rent a Chevy Cobalt with 5000 miles on it and the water pump gives out, just get it towed to the dealer and any good rental company will supply you with a replacement vehicle.

I'm not trying to be mean and certainly empathize with your situation, but I hope this helps to put it in context. If you purchased CDW expecting it to cover mechanical issues as well, you were unfortunately mistaken. Alamo has no reason to refund your CDW charge and in fact $358 isn't bad at all for repairs.

When I worked for Thrifty in Victoria, BC I had some customers who filled a Grand Caravan from YVR to the brim with diesel fuel. Because we were a franchise office, we had to close their contract as a Victoria drop (including the $200 drop fee), open a new contract for our vehicle to go to YVR (with another drop fee), and charge them the cost of repairs which I think ran into the $500-600 territory. Not fun at all.

From the rental car company's perspective, you made the choice to put diesel in the vehicle by not reading the label carefully enough, so they cannot be responsible for the repair costs.