Fraudulent Suit

I and another car backed into each other in a parking lot. There was no damage as neither car was doing more than 1-3 mph. I was alone and the other driver had a young child in the back seat in a child seat. I took pictures showing no damage. We spoke briefly, shared phone numbers, and drove away. No one bothered to file a police report. A few weeks later the other driver, through a lawyer, notified my insurance company that they had 3 people suffering injuries and their car had $1,100 in collision damages! It’s been 4 months and their lawyer still has not provided a demand or any medical records. But he wants us to go to a non binding mediation as soon as he gets the medical records and makes a demand. This is a totally fraudulent claim. The other driver works in the same building as my tailor. We were in the tailor’s parking lot when the so called accident occurred. I see her car there all the time. I’ve been going to that tailor for over 10 years. I don’t want to go to my tailor anymore because I’m afraid of seeing her. She has me very upset. I have since changed tailors because of her. My insurance company is dealing with this, spending legal fees on it and I’m afraid they may just settle with her rather than paying a lot of money to go to trial. What can I do about this? What about my damages? Meaning my mental anguish. Should I bother to counter sue her? The accident was not my fault and there was no damage to either car and no injuries. My insurance company’s lawyer said the pictures I took prove there was no damage to either car so it is highly unlikely that anyone was injured. Despite my username some people are very difficult to love. Help!