Some advice please?

[broken]

I have been operating a design business for three years now and for the first time I have an unhappy client and I'm not quite sure how to handle this situation...any help will be greatly appreciated.
I have been working with this client for nearly a year and a half on his quite complex insurance website. We had planned for launch on March 1st. My wife and I spent most of that week and the week after in the hospital having our daughter. For the next two weeks I basically set my business aside and tried to reorganize my life accordingly. (Client knew about this and essentially approved - he was quoted as saying 'take care of your family then we will take care of the site')
Surprisingly to me I received a letter from client's lawyer stating that he wanted all files and documents handed over in 10 days. Client and I have no written contract, everything was verbal. I made an attempt to contact the client, but my response was instead returned by his attorney stating that he had hired another firm and requested all files be turned over.
I have no problem giving him a CD of all the files that he has paid for, but I do not want to be associated with the site once this new firm takes over. I also want to make sure that if in 6 months a freak server crash occurs (or something) due to my code that I am not liable for it - god knows what could have been altered in it.
What kind of ground do I have to stand on? They are basically trying to bully me into giving them these files, I want to make sure my butt is covered in the long run - I would also like to do a little pushing back where possible.
Again, any help or advice is GREATLY appreciated. If I posted this in the wrong forum...sorry

[gthorley]

Sounds like you are prepared to hand over the CD so why not draft a letter (or better still get your lawyer to, but it will cost you) indicating that "the client" by accepting this work in an incomplete form agrees that it is not completed and releases you from any and all liability for the performance now or in the future, agrees to have no reference to your name on the work or any site it is located on, and further releases you from any present or future claim for damages.

[westmich]

You may also want to keep a copies of the files in case they do come back at you down the road.

[broken]

gthorley, thank you for the reply. I did intend and have actually drafted a letter to that effect. I have now updated it with your suggestions. I really appreciate your advice.
I also appreciate your advice and reply westmich, I had actually intended on destroying all the files. I will keep a copy like you said, in case they do come back at me. I would not expect that to happen, but god knows I did not expect this to happen either! Until this point he's been raving about our service and loved our design. Weird...
Thanks again! Thank you in advance for anyone else with advice for us!

[johntabita]

I'd strongly recommend you contact a lawyer. Here's a service I know about and am considering myself: it's a concept called "PrePaid legal services". For around $300 a year, you get access to a lawyer for consultation in situations such as yours. (I'm assuming you're in the US.) If you have to go to court, you get discounted fees on legal services.

If you search online for "prepaid legal" you'll turn up a host of websites for people who are distributors.