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Also as mentioned by them offering £25 they have already implied that they accept responsibility. This is a mistake on their part. You letter should make mention of this. Nothing less than the cost of a replacement.

This is a tricky one. I can see where the school are coming from. A pupil shouldn't really be wearing an £80 watch to school as accidents happen etc etc. However this is very different. The watch was placed into the care of one of the schools members of staff and it was their negligence that...