Looking at the comments so far -

When it comes to the value of claim being worthwhile, I suggest if you are intending to sue you would sue for the full value of damages - you are not obliged to claim from your insurer.

Time in court? That's what lawyers are for. It would probably not take much more than a letter of demand and issuing of summons in this instance.

Is driver 1 insured? Yes.

Can driver 1 afford the claim? They're insured - the insurance company would be paying.

That's why we take out insurance, to cover these sorts of things... True, but accident claims affect what you're going to pay for that cover. I also suggest that ultimately you're insuring for your mistakes and covering for those times when you get hit by the wrong person.

Legally and financially making claim against driver 1 is perfectly tenable (although there is a cashflow implication). Technically my insurer will be making a claim against driver 1 anyway. Whether they will or not remains to be seen - I have my doubts based on their past history in pretty clear-cut similar cases.

All said I think I'm leaving it up to the insurers though. There are some interesting relationship complications in this particular case (which I was going to torture you with) - but after some consideration, keeping it all via third party probably is the way to go. At least that way if there's any flashback, I can honestly say it is all out of my hands.

Thanks for everyone's feedback - it really did help me make peace with my decision.