Following this incident:

the 3rd party has been threatening legal action to claim their insured losses.

My insurer had been very positive about it, they had previous stated on the phone that they agreed I was in the right and I wasn't liable. Today i have received a letter which says "we do not believe it will prove possible to defend the claim being made against you. Therefor we will proceed to conclude this matter on the best possible terms".

ie they are going to give in and I'm going to lose my no claims bonus etc.

The 3rd party is lying about which section of road the collision occured on. Do I have any way to appeal my insurers decision or to force them to defend it? I'll take the 3rd party to court on my own if I have to.