|Why are you bothering with it? Let the insurance company deal with it. |
In some places the responsibility is for the tenant to have renters insurance while others you may be responsible. In any case you need local laws so get a lawyer.
CD's and records don't get damaged from a leak as far as data is concerned. But people want jackets so some part may be damaged or he may have some loss but i doubt it is what he may be claiming.
Since he is running a business from your home, I'd tell him to take a hike. He needs insurance unless you knew he had special terms.
In any case you need legal advice not technical advice.
A Pit Bull is like a gun you can pet. And there is no safety on it.