Water billing is indeed nonlinear with no cap. I had a surprise $3000 excess water bill due to a broken connection at the meter. Followed by a $3000 excess sewer bill (!) because the assumption is if I used $3000 of water, it must have gone down the drain. However, if you demonstrate to an inspector that the water must have leaked below ground (as in this case) there’s a process for getting the second charge waived. Unfortunately the leak was on our side of the meter, so the first charge was correct, though we got partial forgiveness.
So, when they read the meter, and saw that it was flooded at the meter or nearby, they didn't think to mention that to you? I ask because you said "surprise bill" - another comment i made explains my neighbor's water meters have a light on them that lights up if there's a leak, which the meter reader can see and the homeowner usually cannot - the only reason to not notify the homeowner of an issue is because of $.
If I recall correctly, we discovered and fixed the leak because the ground around the meter had become a mud pit, then the meter was read some time later. The size of the bill was still a surprise.
