I had a similar situation about a year ago. A women came in complaining of a check engine light. We pulled a code for a coolant temp problem and found that the coolant was a low. We pressure tested the cooling system and found nothing. After running the car for the day, we found nothing. The fans came on and the temperature held steady. We decided to clear the code, give the car back to her and get her back in a few days to recheck the coolant level.
Three days later, the women called and said that the check engine light came back. The service advisor who took the call asked her if the temp gauge was high and also asked if the car appeared to be running ok. She said everything seemed ok and the gauge was right in the middle. He told her to please bring it back to us as soon as possible. She said she would bring in now.
What we did not realize was that she was in NYC, about an hour away. Another thing we did not realize was that there was an internal problem and the coolant was very low. By the time she got it back to us, the engine was cooked.
We sat down with her, the husband and the father and tried to explain, but they would not here any of it. We ended up replacing the engine at no charge. It killed me to do that. This had never happened before.
The good news is that the entire family still comes to us and have since then spent thousands of dollars with us.
My advice: Sit down with them in a private setting. Explain in detail all that had a happened and ask them if they have any suggestions on how to solve this. Don’t be too willing at first to give up the farm, BUT do whatever you must to protect your good name. Think long term, not short term.
I know how you feel, I really do.