Defenses: Small Claims Court Motion and Dismiss

I hit someone's car and my insurance paid the repair bills. I was at fault. The person I hit asked for diminished value and my insurance refuse. I talked to the person I hit, he said that the insurance did not investigate seriously and denied his claim that he will sue me to small claims court. The person I hit and I wanted to settle this claim as soon as possible, but my insurance refuses and wanted to bring it to small claims court. Is this action considered that it violated that the insured refuse to settle a third-party claim? I thought insurance should protect me from going to court.

I asked a laywer yesterday that he said I could file an answer to the court to dismiss the small claims court. Is it true? I though it could be only done in civil court.

Should I continue to let my insurance to handle the issue?

Defenses: Small Claims Court Motion and Dismiss