Responding to a Demand Letter in Texas

By Hank FasthoffJuly 19, 2026

A demand letter fixes a claimant's position in writing and asks your business to pay money, perform an obligation, stop specified conduct, or preserve a claimed right. Receipt may trigger a contractual notice period, a statutory inspection or settlement process, an insurance reporting obligation, or a duty to preserve evidence. You should identify those consequences before anyone responds.

You should record the date and method of delivery, save the envelope and attachments, and send the complete package to counsel. You should also limit internal discussion to the people who need to collect facts, protect operations, or make a decision. A quick email written from memory can become an admission, reveal a defense, or conflict with the records you later assemble.

Counsel can organize the review, but copying a lawyer on an ordinary business email doesn't make the communication privileged. Under Texas Rule of Evidence 503, the attorney-client privilege covers confidential communications made to facilitate professional legal services within the relationships the rule defines. Your team should separate requests for legal advice from operational discussions and avoid circulating privileged communications beyond the people needed for that advice.

Preserve the Evidence

A demand letter often confirms a substantial chance of litigation. Once you know or reasonably should know that there's a substantial chance a claim will be filed and that evidence in your possession or control will be material and relevant to it, Texas law may impose a duty to preserve the evidence.

In Brookshire Brothers, Ltd. v. Aldridge, 438 S.W.3d 9 (Tex. 2014), the Texas Supreme Court held that the trial court determines whether spoliation occurred and selects a remedy proportionate to the culpability and prejudice involved. A spoliation finding requires a duty to preserve relevant evidence and an intentional or negligent breach of that duty. The court also held that a jury instruction generally requires a finding that the party acted with the specific intent to conceal discoverable evidence, subject to a narrow exception when negligent destruction causes irreparable prejudice.

You should suspend ordinary deletion and destruction practices for relevant paper files, email, text messages, messaging platforms, accounting records, customer files, recordings, device data, and physical evidence. The preservation notice should identify the claim, the affected custodians, the systems they use, and the categories of information they must retain. Someone should confirm that automatic deletion, device replacement, document shredding, and routine disposal won't erase relevant evidence.

Preservation should be broad enough to protect the record without freezing unrelated operations. You should identify who handled the transaction, who communicated with the claimant, who approved the disputed conduct, and where each person stored information. Collecting the most vulnerable sources early can prevent a lost phone, overwritten recording, or expired account from controlling the dispute.

Read the Contract Before Answering

Many commercial demand letters concern a written agreement. You should read the complete contract, including amendments, exhibits, statements of work, purchase orders, incorporated policies, and any documents that establish the parties' course of performance.

Notice provisions may specify an address, recipient, delivery method, and effective date. A letter sent by email may communicate the claim without satisfying a provision that requires delivery by certified mail or overnight courier. You may also have to send your response under the same provision.

Notice and cure provisions can provide time to correct a breach before termination, damages, or another remedy becomes available. The contract may also require executive negotiation, mediation, arbitration, a specified forum, or confidential treatment of the dispute. You should calendar every contractual deadline and determine whether the claimant satisfied the conditions that precede its requested remedy.

An indemnity claim presents a separate set of questions. You may have to notify an indemnifying party and provide an opportunity for that party to control or participate in the defense of a claim from a customer, employee, regulator, or intellectual property owner. Delayed notice can complicate control of counsel, settlement authority, and reimbursement even when the underlying claim has merit.

Evaluate the Claim and the Business Result

Your review should test each allegation against the contract, governing law, and contemporaneous record. You should identify the elements the claimant must prove, the evidence supporting each element, the available defenses, and the remedies the claimant may recover. Damages depend on the cause of action and the governing documents, so a single formula for contract, tort, statutory, and equitable claims will misstate the exposure.

For a contract claim, you should examine causation, foreseeability, mitigation, contractual caps, damage waivers, exclusive remedies, warranty procedures, acceptance, waiver, and prior breach. Tort claims may raise duty, economic loss, comparative responsibility, causation, and statutory limits. A claim under the Texas Deceptive Trade Practices Act may permit economic damages, mental anguish damages in specified circumstances, attorney's fees, and additional damages based on findings of knowing or intentional conduct under Section 17.50.

You should also evaluate the claimant's records, ability to prove damages, duty to mitigate, contractual performance, and exposure to counterclaims. A valid defense may justify a denial, while a strong counterclaim may change the settlement range. Collectability, insurance, customer relationships, publicity, management time, and the cost of litigation affect the business decision without changing the legal merits.

A demand letter generally doesn't suspend the limitations period by itself. The claimant may face a filing deadline while the parties negotiate, and your business may face deadlines for counterclaims, arbitration demands, insurance notice, administrative filings, or contractual remedies. You should identify a statute, contractual provision, court order, or signed tolling agreement before treating any deadline as extended.

Texas Statutory Notice Procedures

Texas statutes set notice and settlement procedures for several types of claims. Senders and recipients have different rights and face different consequences under each statute, so the label "statutory demand" doesn't supply a single response deadline.

Under the Texas Deceptive Trade Practices Act, a consumer generally must provide written notice at least 60 days before filing suit. Section 17.505 requires reasonable detail about the specific complaint and the amount of economic damages, mental anguish damages, and expenses, including attorney's fees. The recipient may request a reasonable opportunity to inspect the goods during the 60-day period. A defendant who receives deficient or untimely notice may seek abatement under the statute.

Section 17.5052 permits a written settlement offer during specified periods. The offer must state separate amounts for the consumer's damages and reasonable and necessary attorney's fees incurred through the offer date. If the consumer rejects an offer and the statutory comparisons favor the defendant after trial, the court may limit recoverable damages and attorney's fees under separate findings required by the section. Those consequences come from the statutory offer process, not from a general rule that every DTPA recipient must answer within 60 days.

The Texas Residential Construction Liability Act uses a different procedure. Property Code Section 27.004 generally requires a claimant to provide written notice at least 60 days before filing an action and to include available evidence supporting the claim. On request, the contractor may conduct up to three inspections during the 35-day period after receiving the notice. The contractor may send a written settlement offer by the 60th day after receiving the notice, and the claimant has 25 days to accept before the offer is considered rejected. Accepted repairs generally must be completed within 60 days after written acceptance unless the claimant or events beyond the contractor's control delay completion. A rejected offer can limit recoverable damages and attorney's fees if the trier of fact finds the offer reasonable. You can find the full process and statutory exceptions in our article on Texas construction defect claims under the RCLA.

Insurance claims can involve two overlapping notice statutes. Insurance Code Section 541.154 requires a person seeking damages under its subchapter to provide written notice no later than the 61st day before filing suit. The notice must advise the recipient of the specific complaint and the amount of actual damages and expenses, including reasonably incurred attorney's fees. Claims concerning certain first party property insurance policies may also fall under Chapter 542A. Section 542A.003 requires presuit notice no later than the 61st day before filing an action and specifies additional content, including the amount alleged to be owed for the claim and a statement of attorney's fees calculated from contemporaneously kept time records.

Each of these statutes contains exceptions, abatement procedures, and provisions that affect settlement or recovery. You should identify the governing statute from the pleaded or threatened claim, confirm which version applies, and calculate every period from the event the statute specifies.

Notify the Insurers

A demand letter may constitute a claim under one policy and a circumstance that may give rise to a claim under another. Coverage depends on the policy language, the allegations, the date and nature of the alleged conduct, the policy period, exclusions, retentions, and compliance with notice requirements.

Commercial general liability, professional liability, cyber, employment practices, directors and officers, fiduciary, crime, and other policies insure different risks. Some operate on an occurrence basis, while many professional and management liability policies use claims made or claims made and reported terms. A claimant's request for money or services may satisfy a policy's definition of a claim before a lawsuit begins.

You should send timely notice through the method required by each potentially responsive policy and provide the demand and related materials. You should also review defense provisions, consent-to-settle terms, panel-counsel requirements, cooperation duties, allocation clauses, and restrictions on voluntary payments. A response or settlement reached without the required insurer consent may create a separate coverage dispute.

Tendering the claim doesn't establish that the insurer owes a defense or indemnity. It preserves the opportunity for the carrier to evaluate those duties under the policy and governing law. You should track acknowledgments, reservations of rights, coverage questions, and requests for additional information while counsel handles the underlying response.

Control the Settlement Record

Under Texas Rule of Evidence 408, specified compromise offers and statements made during compromise negotiations aren't admissible to prove or disprove the validity or amount of a disputed claim. A court may admit the same evidence for another purpose, including proof of bias, undue delay, or obstruction of a criminal investigation or prosecution.

That protection has limits. A factual admission made outside compromise negotiations may be admissible, and writing "settlement communication" on an email doesn't control whether Rule 408 applies. You should assume that a response may appear before a judge, jury, arbitrator, insurer, regulator, or business decision maker and write it accordingly.

A response can preserve defenses without recounting every fact or producing the evidence that supports them. It may request missing documents, reject unsupported allegations, correct a material factual premise, invoke contractual procedures, reserve rights, propose a discussion, make a settlement offer, or state that a substantive response will follow after an agreed extension. The right choice depends on the claim, the record, and the result your business wants.

Choose the Response

You may deny the claim when the facts, contract, and law support that position. You should state enough of the basis to communicate that you evaluated the claim, while preserving defenses and avoiding unnecessary factual commitments. If the claimant owes money or breached the same agreement, the response can preserve and describe your counterclaim.

You may negotiate when the claim has value, the parties need an ongoing relationship, or early resolution costs less than litigation. In a settlement response, you should separate liability from business compromise, define the amount or performance offered, set an acceptance deadline, and identify the documents or conditions required to close the settlement.

Some disputes call for immediate filing. A declaratory judgment, temporary restraining order, lien action, limitations deadline, threatened disclosure of confidential information, or continuing infringement may make a response letter insufficient. You should determine whether filing first protects a right, secures a forum, or prevents imminent harm.

Silence can also be a considered choice when the letter requires no response and an answer would reveal information without improving the business position. That decision should follow a legal review of contractual deadlines, statutory procedures, insurance requirements, and litigation risk. If you choose silence, you should record the reason and a review date.

Document the Resolution

A payment or promise resolves only what the settlement documents cover. You should define the released claims, releasing parties, payment terms, tax reporting, confidentiality obligations, permitted disclosures, non-disparagement terms, dismissal procedure, treatment of liens, return or destruction of property, and consequences of breach.

The release should address known and unknown claims within the intended scope and identify whether affiliates, owners, employees, insurers, representatives, and successors receive protection. If performance will occur over time, the agreement should state whether the release becomes effective at signing, payment, completion, or dismissal.

You should also confirm who has authority to sign, whether an insurer or indemnifying party must consent, and whether a court filing or lien release must follow. A settlement that depends on future performance requires a remedy if that performance doesn't occur.

What You Should Do After Receipt

You should record receipt, preserve relevant evidence, send the complete letter to counsel, and stop informal responses. You should then read the governing contract, calendar every deadline, identify each potentially responsive insurance policy, and collect the people and records needed to test the allegations.

Your response should fit the claim rather than a template. You can use the period before pleadings, discovery, and litigation expense to define the dispute while your business has more choices. You should base the response on the contract, evidence, insurance, and governing procedure, then pursue the result your business can defend.