Welcome to the community!
It's unfortunate you did not understand that you need to pay a processing fee for a device repair. However from what you note, it is not a scam. Device protection is like any other insurance, if you file a claim there is a deductable or processing fee. The fee isn't something they just made up to try to scam you. The fees would have been outlined in the documentation provided to you when you first purchased the protection. You can also view the fee schedule here. There is a repair processing fee as well as a replacement processing fee depending on the claim; and the fees vary depending on the cost of the device. Informing you of the processing fee is honouring the agreement.
Admittedly, the representative in North Bay probably shouldn't have suggested being able to break your phone with a hammer. However, you should have had all of the necessary documentation when you decided to purchase the protection. **edit** Even if the representative was correct and Brightstar would be willing to repair/replace the device, it wouldn't be without the processing fee.**
Hope this helps 😀