Compensatory Damages (Overview: What Is It And How It Works)

Compensatory Damages (Overview What Is It And How It Works)

What are compensatory damages?

How do you define compensatory damages?

How does it work and what are some examples?

We will look at what compensatory damage means, different types of damages in a lawsuit, general compensatory vs actual compensatory damages vs punitive damages, what it entails in contract law and personal injury cases, examples and more.

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What are compensatory damages

Compensatory damages are monetary damages awarded by a civil court to compensate the plaintiff for damages or injuries suffered as a result of another’s fault, negligence, acts or omissions.

Compensatory damages are monetary awards in civil lawsuits

As the name suggests, compensatory damages are awarded to “compensate” a person for the damages effectively suffered.

The plaintiff must demonstrate to the court that there were damages suffered attributable to the conduct of the defendant.

For example:

In a personal injury lawsuit, the plaintiff must prove that the defendant was negligent and the negligent conduct lead to injuries 
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There are two types of compensatory damages a plaintiff may claim in court:

  • Compensatory damages for actual damages suffered
  • Compensatory damages for general damages suffered 

Actual damages represent actual money you lost, it is tangible and quantifiable.

You can quantify and show exactly how much you lost as a result of the other party’s unlawful actions.

General damages are not tangible and concrete as actual damages.

General damages are non-monetary damages such as loss of enjoyment of life, stress and anxiety or emotional distress.

Compensatory damages definition 

According to FindLaw, “compensatory damages” is defined as:

Damages, in many cases, come in two major categories: punitive and compensatory damages. Punitive damages seek to punish the person for their wrongdoing. In contrast, compensatory damages are intended simply to pay the person who was injured.
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What is notable with this definition is that compensatory damages is intended to simply compensate the person who was injured.

In other words, compensatory damages are not intended to make a person earn a profit but to get back enough money to cover what was lost.

Compensatory damages example

Compensatory damages can be any form of damages suffered by a person resulting from the actions or omissions of another.

This can cover quite a wide spectrum of possible damages.

To better understand the notion, it may be useful to look at some examples of compensatory damages.

Let’s look at a personal injury case to illustrate an example of compensatory damages.

Mary is gravely injured in an accident caused as a result of John’s negligence.

Mary is hospitalized, undergoes surgery and then goes through rehabilitation and physical therapy.

Mary can sue the person responsible for the accident and claim the following as compensatory damages:

– Medical expenses for her time at the hospital 
– The costs for physical therapy 
– The cost of the prescription drugs and medicine she purchased
– The cost for any medical equipment she needed
– The cost of the ambulance ride to the hospital 
– Salary loss for the period time she could not work
– Reduced capacity to work in the future
– Any additional expenses for transportation 
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If Mary was not in an accident resulting from John’s negligence, Mary would not have to assume any of the losses she suffered.

The court will condemn John to pay Mary compensatory damages to “compensate” for damages suffered (or expenses incurred) resulting from the accident.

Types of compensatory damages

There are two types of compensatory damages: 

Actual damages (economic damages)
General damages (non-economic damages)

Actual damages 

Actual damages represent a specific amount of money a person lost. 

It’s something tangible and can concretely be quantified.

Actual damages are easily quantifiable 

An award for compensatory damages to compensate “actual damages” is intended to replace, reimburse or compensate what was disbursed, incurred or actually lost.

Actual damages can include:

  • Medical expenses
  • Emergency room care
  • Rehabilitative care
  • Prescription drugs
  • Medical procedure costs
  • Lost wages
  • Lost income
  • Repair of property
  • Replacement of property

This is just a list to give you an example but economic damages could be anything a person loses as a result of the conduct or behaviour of another.

General damages

General damages on the other hand do not represent an actual expenditure of cash but damages suffered by a person resulting from another’s conduct.

General damages are non-monetary damages suffered

General damages can include:

  1. Excessive stress and inconvenience 
  2. Anxiety and emotional distress 
  3. Mental suffering or anguish 
  4. Pain and suffering caused to a person
  5. The loss of a person’s enjoyment of life
  6. Personal shame 
  7. Mental anguish
  8. Shock 
  9. Depression
  10. Grief 
  11. Embarrassment 
  12. Loss of consortium 
  13. Loss of romantic life
  14. Inability to do recreational activities
  15. Disfigurement and scars 
  16. Lost opportunity 

These are real damages a person may suffer but are not quantifiable in the same way as actual damages such as tallying up invoices, receipts and statements.

General damages are typically awarded in personal injury cases where a person suffers damages beyond the medical bills and rehabilitation.

How to calculate compensatory damages

Compensatory damages should be calculated to equate the value of the injuries suffered by a person.

For example:

If Helen lost $10,000 due to Marc’s gross negligence, compensatory damages should equate to $10,000, nothing more and nothing less
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Let’s look at how we calculate general and actual damages.

Calculating actual damages

To calculate the actual damages, you’ll need to add all the expenses, costs, damages, harm, prejudice, liability or damage you suffered to reach the total value of the actual damages.

For example:

John pays $15,000 to Bob to renovate his kitchen.

Bob breaches the terms of the contract and does not renovate the kitchen although he pocketed $15,000.

John can claim the following actual damages:

– $15,000 for having paid Bob 
– $1,000 to have another contractor inspect the work done
– $2,000 to fix crucial and urgent aspects of the work presenting a danger to the property 

John can claim $18,000 in actual damages from Bob for the breach of contract.
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Calculating general damages

In tort law, many criticize the quantum of general damages the plaintiffs claim particularly as it relates to medical malpractice.

Juries in the United States have awarded significant sums of money to compensate for general damages suffered by a plaintiff and many have lobbied to have the law establish a cap on how much can be awarded.

Some states have adopted laws to legally cap general damages

In response to the pressure, California adopted the Medical Injury Compensation Reform Act intended to limit how much a plaintiff may recover for non-economic losses resulting from professional negligence.

Opponents argue that by capping general damages, the courts may not award damages based on the true damages suffered by the plaintiff.

As such, the defendants do not compensate the plaintiff for the effective damages suffered.

Compensatory damages vs punitive damages

Compensatory damages represent a sum of money awarded by the court to compensate a litigant or plaintiff for damages actually suffered.

On the other hand, punitive damages are damages awarded by the court over and above the actual damages suffered by the plaintiff.

The objective of punitive damages is to punish the defendant

The objective of compensatory damages is to make the plaintiff whole again while that of the punitive damages is to “punish” the defendant so he or she does not repeat the same act or behaviour.

Punitive damages are awarded exceptionally when the conduct of the defendant was extremely reprehensible. 

In personal injury cases, the court or jury can award punitive damages over and above compensatory damages to discourage the defendant from repeating the same conduct.

Compensatory damages vs actual damages

According to the U.S. Supreme Court, in the case Birsdall v. Coolidge (1876), “compensatory damages” and “actual damages” are considered to mean the same thing.

Actual damages represent a type of compensatory damages.

Compensatory damages include actual damages along with other types of damages.

When you can directly quantify a loss or injury, you are dealing with actual damages (they are “actual” or “tangible” damages).

For example:

Mary is the victim of a car accident.

The court awards her $15,000 for the actual damages she suffered (hospital and medical expenses) and $5,000 for the pain and suffering she endured (general damages).

In this case, Mary gets $20,000 of compensatory damages (includes actual and general damages).

Actual damage is included in compensatory damages but compensatory damages include other types of damages like general damages.
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When you are dealing with general damages, special damages, consequential damages or incidental damages caused by a fault, act or omission, you are still within the realm of compensatory damages but not necessarily actual damages.

Some of these damages may be monetary where you can actually quantify them and some may be non-monetary where the law will generally provide the mechanics to calculate them (such as calculating the value of emotional distress).

Compensatory damages vs monetary damages

Compensatory damages means an amount legally determined to fully compensate the injuries or harm suffered by a person.

Typically, compensatory damages are awarded in the form of monetary compensation.

The monetary compensation can also be referred to monetary damages.

You can also nuance monetary damages from non-monetary damages or non-economic damages.

For example:

If Suzanne suffers a loss of $10,000 to pay for her medical bills, she is considered to have suffered $10,000 in monetary damages.

If Suzanne suffers emotional distress, pain and suffering, then she is considered to have suffered non-monetary damages.

Suzanne’s non-monetary loss will be compensated by the award of a certain amount of money.
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Non-compensatory damages

Non-compensatory damages are the exception to the rule.

In most cases, compensatory damages provides a just and fair reparation of the injuries suffered.

However, in some cases, that may not be the case.

The courts can exceptionally look at non-compensatory damages to compensate a person or entity where the strict application of compensatory damages may lead to an injustice.

You have a few types of non-compensatory damages developed in civil and common law:

  • Nominal damages (symbolic in nature and thus non-compensatory)
  • Liquidated damages (parties contractually pre-estimate potential and genuine damages)
  • Restitutionary damages (when the wrongdoer benefits from the commission of the wrongful act and the court orders the restitution of those benefits)
  • Punitive damages (as a means to punish and deter the wrongdoer from committing the same acts)
  • Moral damages (wrong done to a person’s emotions, honour or reputation)

Compensatory damages FAQ

Compensatory Damages FAQ

What is “compensatory damages”

Compensatory damages are monetary damages awarded by a civil court to compensate the plaintiff for damages or injuries suffered as a result of another’s fault, negligence, acts or omissions.

What are actual damages

Actual damages represent a specific amount of money a person lost

It’s something tangible and can concretely be quantified.

An award for compensatory damages to compensate “actual damages” is intended to replace, reimburse or compensate what was disbursed, incurred or actually lost.What is an example of compensatory damages

What are compensatory damages and punitive damages

Compensatory damages represent a sum of money awarded by the court to compensate a litigant or plaintiff for damages actually suffered.

On the other hand, punitive damages are damages awarded by the court over and above the actual damages suffered by the plaintiff.

Punitive damages are awarded exceptionally when the conduct of the defendant was extremely reprehensible. 

Do compensatory damages include emotional distress

Yes, emotional distress is a non-economic type of damage (general damages) a person may suffer as a result of the negligence of another.

General damages is in turn a type of damage included in compensatory damages alongside actual damages. 

You may have an award of general damages for emotional distress particularly when there are bodily injuries, personal injury or physical harm (personal injury cases, negligence lawsuits, negligence per se lawsuits).

What are the 3 types of damages

Some consider that there are 3 types of damages:

  • Compensatory damages
  • General damages
  • Punitive damages

You can also consider that there are two main types of damages, instead of three:

  • Compensatory damages (includes actual damages and general damages)
  • Punitive damages 

General damages are non-monetary damages suffered by a person such as embarrassment, loss of enjoyment of life or loss of consortium but represent actual and real damages suffered by a person’s wrongdoing.

From this perspective, when a person suffers a personal injury, an award of compensatory damages should repair the actual damages (medical bills) and general damages (pain and suffering) suffered.

When can you claim compensatory damages

You can claim compensatory damages whenever you suffer a loss.

The objective of compensatory damages is to compensate you with enough money to replace the loss you suffered.

In tort law, you can claim compensatory damages caused by the negligent conduct of another (negligence lawsuit, negligence per se lawsuits or other) in cases like:

  • Car accidents
  • Pedestrian accidents
  • Workplace injuries
  • Medical malpractice
  • Defective products 
  • Dog bite attacks 

These are just some examples to give you an idea.

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