What Businesses Should Do When They Receive a Demand Letter

Few things get a business owner's attention faster than receiving a demand letter from an attorney. Whether the dispute involves an alleged breach of contract, unpaid invoices, employment issues, property damage, intellectual property concerns, or another business matter, a demand letter is often the first indication that legal action may be on the horizon.

How a business responds in the days immediately following receipt of a demand letter can significantly impact the outcome of the dispute. While every situation is unique, there are several important steps businesses should take to protect their interests.

Do Not Ignore It

One of the most common mistakes businesses make is assuming that a demand letter can simply be disregarded. While a demand letter itself is not a lawsuit, it is often a precursor to litigation. Ignoring the allegations may eliminate opportunities to resolve the matter early and could ultimately increase legal expenses if the dispute escalates.

Even if the claims appear meritless, they should be taken seriously and evaluated carefully.

Preserve Relevant Documents and Communications

Upon receiving a demand letter, businesses should immediately identify and preserve any records that may relate to the dispute. This includes contracts, emails, text messages, invoices, photographs, internal communications, and other potentially relevant documents.

Deleting records or allowing routine document destruction practices to continue can create significant problems if litigation later arises. Early preservation of evidence is one of the most important steps a business can take to protect itself.

Avoid Responding Emotionally

Demand letters are often written in strong language and may contain allegations that business owners believe are unfair or inaccurate. While the temptation may be to immediately call the opposing party or send a detailed response, doing so without legal guidance can create additional risks.

Statements made in haste may later be used as evidence in litigation. Businesses should carefully consider their response strategy before communicating with the claimant or their attorney.

Notify Insurance Carriers When Appropriate

Many businesses are surprised to learn that certain claims may be covered under existing insurance policies. Depending on the nature of the allegations, commercial general liability, professional liability, employment practices liability, or other policies may provide a defense or indemnity.

Because many policies contain notice requirements, businesses should promptly review potentially applicable coverage and notify their insurance carriers when appropriate.

Evaluate the Merits of the Claim

Not every demand letter warrants an aggressive response, and not every claim should be settled. An early legal evaluation can help determine the strengths and weaknesses of the allegations, assess potential exposure, and identify practical options for resolution.

In some cases, a prompt response supported by documentation may resolve the dispute before litigation becomes necessary. In others, a more formal defense strategy may be required.

Involve Legal Counsel Early

Perhaps the most important step a business can take is consulting experienced legal counsel as soon as possible. Early involvement allows counsel to preserve evidence, assess liability, communicate with opposing parties, evaluate insurance coverage, and develop a strategy tailored to the company's objectives.

A demand letter does not necessarily mean a lawsuit is inevitable. However, businesses that respond thoughtfully and proactively are often in a stronger position to protect their interests and achieve a favorable outcome.

If your business has received a demand letter or is facing a potential dispute, the attorneys at Setliff Law can help evaluate the situation and develop an effective response strategy. Contact Steve Setliff (ssetliff@setlifflaw.com) at (804) 377-1261 for more information.