How do I prevent iPhone USB "hotspot" from commandeering laptop's Internet connection? Looking for phone setting preferably. Turning off Hotspot not acceptable option.

Is turning off USB network in System Preferences on the laptop the only way?
If you have a laptop that you never want to utilize hotspot tethering, just delete the tethering interface from the Network control panel in System Preferences. Screen shot attached. This will prevent any network activity through your laptop, if for some reason the wifi or ethernet connection is lost.  

If you want to tether in the future, you will have to add it back by hitting the "+" button.