A Lawsuit Threat Arrives Before a Formal Claim: Decision Tree

Why this matters

An incident happened weeks or months ago, you thought it was closed, and now a letter shows up from an attorney, or a customer calls and says the word "sue." No formal claim has been filed anywhere yet. What you do in the next hour decides whether your insurer can fully defend you later or whether you have already handed the other side ammunition. The instinct to call the customer and "sort it out like adults" is exactly the instinct that creates liability. Preserve, notify, and go quiet, in that order, before you do anything else.

Start here: stop talking about the incident itself

The moment a lawsuit is mentioned, threatened, or implied, whether by the customer, a family member, or a letter, treat every future word about that incident as something that could end up read aloud in a courtroom.

• Do not call the customer to explain your side, apologize for the outcome, or negotiate. A well-meant conversation can be characterized later as an admission, a settlement offer, or a waiver of a defense your insurer would otherwise have.
• Do not respond to the letter yourself, by phone, email, or in writing. A "let me explain what actually happened" reply from you, sent before your carrier is involved, removes the carrier's ability to control the narrative and can complicate coverage.
• Do not discuss the incident on social media, with other customers, or with the crew beyond the facts your incident report already contains.

Going quiet is not guilt. It is the same discipline you would want a customer to show if the situation were reversed.

Step 1: preserve everything, right now, before anything gets lost

• Pull the job file immediately: the work order, any signed agreements, before-and-after photos, notes, texts or emails with the customer, and your original incident report if one exists.
• Do not edit, delete, or "clean up" anything, including internal notes that seem unflattering. Altering a record after a legal threat has arrived is discoverable and turns a defensible claim into a bad-faith problem for you specifically, separate from the underlying incident.
• Identify witnesses while memories are fresh: which tech was on site, who else was present, whether anyone photographed the area independently.
• Preserve the physical evidence if you still control it, the failed part, the damaged material, the equipment involved. Do not repair, discard, or return it until your insurer or attorney says it is clear to do so.

Step 2: notify your carrier the same day

• Call your general liability (or the relevant) carrier immediately and report the threat, even though no formal claim exists yet. Most policies require prompt notice of anything that could become a claim, not just a filed lawsuit, and late notice is one of the few things that can jeopardize coverage you otherwise have.
• Send them the letter or a written summary of the verbal threat the same day, along with the job file you just pulled together.
• Ask directly what they need from you and what they will handle. A carrier with a duty to defend will often take over communication with the claimant's attorney from this point forward, which is exactly what you want.

If you are not sure whether this rises to the level your policy requires reporting, report it anyway. Over-notifying costs nothing. Under-notifying can cost you the whole claim.

Step 3: route every future contact through the carrier or an attorney

Once you have reported it:

• Forward any further contact from the claimant, their attorney, or an insurance adjuster on their side straight to your carrier without responding yourself.
• If your carrier assigns defense counsel, that attorney is now your point of contact for anything related to the incident. Loop in your own separate attorney if you have one, particularly if the claim could exceed your policy limits or involves an allegation your policy might not cover.
• Tell your crew and office staff the same thing: any call about this incident gets a name and number taken, and gets forwarded, not answered.

Step 4: judge what kind of threat you are actually facing

• A vague, angry mention of "getting a lawyer" with no letter and no attorney contact yet. Still notify your carrier, still preserve the file, but there may be nothing further to do until something formal arrives.
• A written demand letter from an attorney, naming a specific claim and often a number. This is the point where your carrier's involvement stops being optional. Report it immediately if you have not already.
• A formal notice of claim or a served lawsuit. Deadlines start running. Do not sit on it, even for a day. Get it to your carrier and, if you have independent counsel, to them as well, the same day it arrives.

The recap

Stop talking about the incident directly with anyone but your carrier and its attorney. Preserve the file exactly as it stands, untouched. Report the threat to your carrier the same day, even before anything is formally filed. Route every future contact through them. The pattern that gets shops in real trouble is not the underlying incident, it is an owner who tries to handle a legal threat personally, with good intentions, before the people whose job it is to handle it even know it exists.

References

• State bar guidance on responding to demand letters and preserving evidence (litigation hold obligations)
• General liability policy conditions on prompt notice of claim or occurrence
• Federal Rules of Civil Procedure and state equivalents, spoliation of evidence consequences
• See related: The Record-Keeping That Protects You in a Claim Dispute, What to Do in the First Hour After a Serious Incident