Why do I have to fill out a W-9 for a property damage payment?

I live in an apartment and the resident above me move out. She was renting a washer and when the employee of the rental company came to disconnect the washer he neglected to tighten the hoses. This results in water damage to my property. I have been going back and forth with this company for about two months. Finally, via email they sent me a General release form and a letter that stated: "I have received all the necessary paperwork to conclude the process of the submitted claim. Upon response, ____________will issue a check for the amount of $__ for the damages incurred." That's what I did. Two weeks later I receive another email stating "Please complete and return the attached W-9 neessary to process your check."

When I questioned the rep that is handling my claim why I need to fill out a W-9 her response was "We are required by law to report any income (earned or unearned income) to the IRS."

I asked that she cite the law that she is refering to. I advised her that punitive damages were taxable. Her comment to me was "The General Release does state this department has the necessary paperwork to process this claim but our accounting department is requesting this W-9; without the completed W-9, xxxxxxx will withhold 28% of this settlement."

She is avoiding my question. If I compare this to a car accident and I receive a settlement, I don't have to fill out a W-9 to repair my car.

I'm considering take this to small claims court. I'm I correct in what I saying or is she correct?
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personal injury attorney Stack and Tilt