- Do not ignore a demand letter, but do not reply in haste either.
- Preserve all related documents and messages as soon as you receive it.
- Notify your insurer promptly; many policies require early notice.
- Read the contract for notice, cure, dispute-resolution, and fee-shifting terms.
- Avoid admissions in writing; anything you send may become evidence.
A demand letter is often the last step before a lawsuit, and the first response shapes leverage and cost. The right approach is to slow down, preserve evidence, check deadlines and insurance, assess the claim against the contract and the facts, and respond in writing only after deciding on a strategy.
1. Read it carefully and calendar the deadline
Identify who is making the demand, what they claim happened, what they want, and by when. Demand letters often set short response deadlines; those deadlines are usually not legally binding, but missing them can prompt a lawsuit sooner.
Note any statute of limitations issues as well. The sender may be acting because a deadline to sue is approaching.
2. Preserve evidence
Once a dispute is reasonably anticipated, you may be required to preserve relevant records. Suspend automatic deletion of email, chat, and files for the people involved and gather the contract, invoices, delivery records, and communications.
Losing evidence after receiving a demand can weaken your defense and, in litigation, lead to sanctions.
3. Check insurance and the contract
Many commercial and professional liability policies cover certain claims but require prompt notice. Send the letter to your broker or insurer early; late notice can jeopardize coverage.
Then read the contract for notice and cure periods, limitation-of-liability clauses, mandatory mediation or arbitration, forum selection, and any prevailing-party attorney’s fee clause.
4. Assess the claim honestly
Compare the allegations with the documents. Identify what is accurate, what is disputed, and what defenses or counterclaims you may have, such as the other side’s own breach or a failure to mitigate damages.
Estimate realistic exposure, including defense costs. The goal is a decision based on numbers rather than on the tone of the letter.
5. Choose a response
Options include rejecting the demand with a clear explanation, requesting supporting documents, negotiating, proposing mediation, or sending a counter-demand. Sometimes a short holding response that asks for time is the right first step.
Keep written responses factual and avoid admissions. Settlement communications generally cannot be used to prove liability under court evidence rules, but labels alone do not protect careless statements.
6. If talks continue, protect your position
If both sides want more time to negotiate, consider a written tolling or standstill agreement so neither side is forced to file early.
Any settlement should be in a signed agreement that defines payment terms, releases, confidentiality, and what happens if a party does not perform.
Frequently asked questions
Do I have to respond to a demand letter?
There is usually no legal duty to respond, but ignoring it often leads to a lawsuit. A considered response can narrow the dispute or resolve it.
Can what I write be used against me?
Yes. Statements of fact in your letters can become evidence. Settlement offers are generally protected, but admissions made carelessly may not be.
Should I tell my insurance company?
Usually yes, and promptly. Many policies require notice of claims, and delay can affect coverage.
This article is general information, not legal advice, and may not reflect the law in your jurisdiction. Reading it does not create an attorney-client relationship.