Geo-targeting does not remove Country level targetting? What??!!! Overcharged by Goog

I feel like the wool is being pulled over my eyes

I setup an Adwords campaign and geo-targeted it using a 5-mile radius around our city.
I came back a day and a half later and nearly a thousand dollars had been charged in clicks! :-(

Looking at the terms that triggered the clicks many of the terms had our keywords + other-cities-around-the-country. So obviously it was not targeting only our city.

I deleted the campaign and contacted Google about a credit (explaining all of the details). I received a reply from a Google employee (a pleasant surprise) and they will give a credit of a few hundred dollars (even more pleasant).


Still , something does not sit right with me. It should have been targeted and the reply from Google raises that question again in my mind.
I was told this:

So they are telling me that, although I did "add" the specific city as a target, the default U.S. targeting was not removed.
What?!
Isn't that a given? If I am targeting a city does that not by default remove the whole US as a target?