It's about ethical problem in dealing with insurance claims

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It's about ethical problem in dealing with insurance claims.  Should an insurance company have a duty to defend its insured when the defense will cost the insurance company more than it would cost to simply pay the plaintiff's claim?  For example, should an auto insurance company have a duty to spend $30,000 to defend its insured when the plaintiff's claim is under $30,000.  What ethical problems arise when the outcome would affect the insured's driving record and, therefore, the rates that the insured would be charged?  What ethical problems can arise with this duty to defend when both drivers are covered by the same insurance company?