Our dog bit another dog now the owner is saying they want vets bill paid?

Our normally extremely docile Bull Mastiff was in the garden with our border collie and tibetan terrier puppy. Our garden has 6ft Iron gates which go out on to the road and a footpath opposite. My husband opened the gate to go out and the puppy slipped out, he made a run for the puppy and the Bull Mastiff followed. The Mastiff then spotted a Staffordshire Bull Terrier on the other side of the road on a lead with owner. For some reason he lunged at the dog it was all over in a few seconds my husband pulled him off and with a bit of abuse from the owner and an apology from my husband the owner went on his way. That was over a week ago. The owner has now knocked the door saying that the Staff had to go to the vets and paid a bill of �120.00 my husband had a look at the dog and said there was a puncture mark on the dog but it didnt look bad, and asked him why it had took a week for him to come back. He said that he was too upset about it. Apparently they have pet insurance which will pay for the vet, but they will persue us for the money so he wants us to pay the bill. We dont know what to do. I think our dog was protecting the puppy from what he thought was danger, almost on our territory. I know the dog was in the wrong but should we tell the owner to go through the insurance or just pay up??